Cometh the hour

BHP's Round One Goes to Elliott

Ken MacKenzie's appointment will please activists -- yet it might kick the fight into a higher gear.
As of 12:20 AM EDT
31.25 AUD

Elliott Management Corp. can claim its first victory in the hedge fund's campaign against the world's biggest mining company.

The appointment of Ken MacKenzie to succeed Jacques Nasser as chairman of BHP Billiton Ltd. is precisely the sort of move that the company's activist critics, including Elliott and Tribeca Investment Partners, had been seeking.

Winners and Losers

Amcor has outperformed BHP in recent years

Source: Bloomberg

Note: Rebased. June 2015=100

A large slice of BHP's board was too tainted by the decision-making around investments in U.S. shale assets, in the view of the company's critics. Of the 11 members, six were appointed before Andrew Mackenzie (no relation) became chief executive officer and joined the board himself in 2013.

Among the four of more recent vintage, the chairman candidate seen as the most likely rival to MacKenzie -- former Origin Energy Ltd. Managing Director Grant King -- was equally shadowed by his background in petroleum, at a time when Elliott has been pushing BHP toward a possible spinoff of that business. 1

In the Hole

BHP and South32 are worth less as two companies than they were as one

Source: Bloomberg

MacKenzie's resume reads like it was designed to address the shareholder-value arguments at the heart of Elliott's complaint. 

Amcor Ltd., the packaging business he ran for almost a decade from 2005 to 2015, was the fifth-best performer in the S&P/ASX 50 index of Australia's biggest companies over the period, with a gain of 146 percent, according to data compiled by Bloomberg. BHP, with a 59 percent gain, only just made it into the top 20.

Some of his major decisions at Amcor would equally appeal. One of his first acts was to commission a review of the business with a view to exiting underperfoming units. The 2013 spinoff of Orora Ltd. has also been conspicuously more successful than Andrew Mackenzie's similar trick with South32 Ltd. two years later.

Wrapped Up

The combined market capitalization of Amcor and Orora has soared since their split

Source: Bloomberg

The combined market capitalization of Amcor and Orora is now about 68 percent above what it was on the eve of the separation, while BHP and South32 trade at a 23 percent discount.

Ken MacKenzie is still a BHP insider, of sorts -- while he joined the board less than 12 months ago, he's not being appointed from outside. Don Argus, who oversaw the merger with Billiton Plc to created the modern BHP, had barely two years on the board when he was appointed chairman back in 1999.

Still, it's hard to interpret his statement on assuming the role as anything other than an olive branch to the activists who've been pestering management:

I look forward to engaging with shareholders and other stakeholders over the coming weeks to understand their perspectives. I am committed to the creation of long-term value for all of our shareholders.

BHP will hope that this appointment lowers the temperature of the activist campaign -- but it's more likely to kick things into a higher gear. Right now, the critics of the existing board and management scent blood in the water. The fight has just begun.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. The two other more recent board members, Anita Frew and Malcolm Brinded, are both U.K. residents; every previous BHP chairman has been Australian.

To contact the author of this story:
David Fickling in Sydney at

To contact the editor responsible for this story:
Paul Sillitoe at

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