BHP Urged to Review Its Dual HQ Structure

Updated on
  • Restructure may see more efficient use of tax credits: RBC
  • BHP CEO said earlier cost of overhaul would outweigh benefits

Photographer: Carla Gottgens/Bloomberg

Activist investor Elliott Management Corp. has called on BHP Billiton Ltd. to immediately review its dual structure after commissioning research that argues reorganizing as a single company in Australia would add more than $22 billion in value to the miner’s shareholders.

Creating a unified company, headquartered and incorporated in Australia, with a primary listing in that country and additional listings elsewhere, would cost $391 million, according to the report by FTI Consulting Inc. BHP is the world’s biggest miner and currently operates as two entities based in Melbourne and London.

BHP’s board should publicly commit to its own review by the time the company announces half-year earnings on Feb. 20, Elliott said in a letter to Chairman Ken MacKenzie, reigniting its campaign against the dual-listing structure that was made public in April last year.

New York-based Elliott, run by billionaire Paul Singer, is the second-largest holder of BHP’s London-listed stock and on Monday raised its total stake to 5.45 percent from 4.65 percent, according to a shareholder notice. The fund has pressed for other action including enhanced returns, and a review of the future of the producer’s entire oil and gas unit.

BHP Chief Executive Officer Andrew Mackenzie said in October the costs of ditching the dual-listing would exceed the potential benefits. The miner has previously calculated the likely cost would be at least $1.3 billion. The company declined to comment on the fund’s latest foray.

There’s no question that a proposed corporate restructuring would enable shareholders to benefit from the more efficient release of Australian tax credits, Tyler Broda, an analyst at RBC Capital Markets in London, said in a note. However, the bank “would be cautious in attributing too much value” to any potential boost from a restructuring, he said.

“This report will certainly provide more focus on the corporate structure at the upcoming half-year results and we would expect the market will be waiting to see a revised response from BHP management,” Broda said.

Under BHP’s existing structure -- a legacy of the 2001 merger of Australia’s BHP Ltd. and the U.K.’s Billiton Plc -- the company has two headquarters and two main stock market listings, but is run as a single entity under the same management and board. Elliott has said the creation of a single Australian company would increase BHP’s value by removing a discount between its shares in London and Sydney.

Creating a single entity would boost BHP’s valuation, allow greater flexibility to use stock in any acquisitions, make future spin-offs easier, reduce costs and bolster transparency, according to FTI’s study, which foresees a $14.1 billion increase in market valuation and $8.7 billion through the release of Australian tax credits via dividends and buybacks.

There’s added urgency for a review as a simpler structure could boost the value of new capital management programs, according to Elliott. The biggest miners are expected to lift returns as strong commodity prices swell profits, while BHP is accelerating a potential $10 billion sale of its U.S. shale assets and may return some of the proceeds to investors.

Read more: Hedge Fund Digs Into World’s Biggest Miner BHP: QuickTake Q&A

BHP shares closed 0.3 percent lower Monday in London, after earlier falling as much as 1.3 percent. The stock has gained about 11 percent in the past year. It’s Sydney-traded stock fell as much as 2.7 percent on Tuesday.

Elliott’s decision to commission the FTI report follows conversations with numerous investors, who also want the issue to be independently assessed, it said in the letter.

The fund, which last made public comments on BHP in August, said it has been encouraged by the company’s recent decisions to exit U.S. shale, defer the Jansen potash project in Canada and review procedures to allocate capital.

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