BHP Billiton (ASX: BHP) (LON:BLT), the world's largest mining company, has rejected a push by activist investor Elliott Management to unlock shareholder value by spinning off about $22 billion of its US oil assets and list them in New York.
The hedge fund manager's demerger proposal, BHP said in a statement, included the suggestion of unifying the miner's dual structure into a single Australia-headquartered and listed company.
The firm estimated its plan could lift the value of BHP's Australia-based investors by 48.6% and by 51% for UK-based shareholders.
BHP said associated risks of spinning off about $22 billion of its US oil assets and other proposed changes would significantly outweigh any potential benefits.But after reviewing the elements of Elliott's pitch, BHP said the costs and associated risks of the proposed overhaul would significantly outweigh any potential benefits.
Elliott's proposal of a primary listing in London would require the approval of Australia's Foreign Investment Review Board, BHP said. The company has returned $23 billion in share buybacks since the dual-listed structure was formed in 2001 and paid out $56 billion of dividends, the miner noted.
The New York-based hedge fund, which owns about 4.1% of BHP's London-listed shares and has rights to buy 0.4% of the Australian ones, insisted in its letter that despite owning mostly first-class quality assets, BHP as an investment has underperformed.
According to Elliott, most of that underperformance "has been driven by the incomplete status of management's streamlining and value-optimization of BHP's group structure and asset portfolio."
In October last year, BHP announced plans to invest as much as $5 billion in its petroleum business and also said it was considering additional investments of as much as $2.5 billion to expand existing projects and to possibly acquire new assets.
In February, the company revealed it had swung from loss to a $3.2 billion profit in the first half of the 2017 financial year. It also announced it was rewarding investors with an interim dividend of 40 US cents a share, higher than the 30 cents a share mandated by its policy.
The company's shares had their best day in months on the news, which became public about half an hour before the close of trade on the ASX. BHP's stock climbed sharply from $24.79 at 3:36pm AEST, closing 4.6% higher at A$25.73. In London, shares were up 2.8% to 1,323.50p at 1:55PM GMT.