COMUNICADO: Elliott Sends Letter and Presentation to the Directors of BHP Billiton Outlining Shareholder Value Unlock Plan (1)

 

COMUNICADO: Elliott Sends Letter and Presentation to the Directors of BHP Billiton Outlining Shareholder Value Unlock Plan (1)

Publicado 10/04/2017 8:06:29CET

LONDON, April 10, 2017 /PRNewswire/ --

Elliott today sent a letter to the directors of BHP Billiton outlining a plan to unlock value and improve capital returns to shareholders.  The Elliott funds, together with certain of their affiliates, hold a long economic interest in respect of approximately 4.1% of the issued share capital of BHP Billiton plc ("PLC")[1].

In the letter and the accompanying presentation, Elliott outlined a plan that could enable management to provide BHP shareholders with an increase in value attributable to their shareholdings of up to c. 48.6% for Limited shareholders and c. 51.0% for PLC shareholders by following three key steps:

-- Step 1: Unifying BHP's Dual-listed company structure into a single Australian- headquartered and Australian tax resident listed company

-- Step 2: Demerging and separately listing BHP's US petroleum business on the NYSE

-- Step 3: Adopting a consistent and value-optimized capital return policy - an opportunity to monetize the substantial franking credit balance through discounted off-market buybacks

Elliott is making the letter and presentation publicly available as a follow-up to its discussions with senior members of BHP's management.   The goal is to provide details of The BHP Shareholder Value Unlock Plan to all of BHP's shareholders, so that BHP can engage openly with all parties on the plan to unlock shareholder value.

The letter and presentation can be downloaded at http://www.valueunlockplanforbhp.com

Full text of the letter follows:

[1] In addition to their long economic interest in PLC, the Elliott funds, together with certain of their affiliates, hold rights to acquire up to approximately 0.4% of the issued shares in BHP Billiton Limited ("Limited").

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April 10, 2017 

http://www.valueunlockplanforbhp.com

LETTER TO THE DIRECTORS OF EACH OF BHP BILLITON LIMITED ("LIMITED") AND BHP BILLITON PLC ("PLC" AND TOGETHER WITH LIMITED, "BHP") 

Your attention is drawn to the important information which is set out in the Appendix to this letter. This letter and a related presentation are being made publicly available at http://www.valueunlockplanforbhp.com [1]

To the directors of BHP:

Introduction

We are writing to you on behalf of Elliott Associates, L.P. and Elliott International, L.P. (together, the "Elliott Funds")[2], which together with certain of their affiliates hold a long economic interest in respect of approximately 4.1% of the issued share capital of PLC[3].

Despite being a leading global resources company with a portfolio of best-in-class large-scale diversified mining assets, in recent years BHP as an investment has underperformed a portfolio of comparable mineral and petroleum companies.

Unfortunately, despite the progressive and successful demerger of South32 in May 2015, BHP's management still cannot deliver optimal shareholder value without (i) resolving the shareholder value inefficiencies caused by its dual-listed company ("DLC") structure; (ii) monetizing the intrinsic value of BHP's US petroleum business [4], the value of which is being obscured by its continued inclusion within the group; and (iii) enhancing capital management to an optimal level.

The BHP Shareholder Value Unlock Plan, which we outline in this letter and the enclosed presentation (the "Value Unlock Plan"), is designed to directly address these issues with three key steps:

-- Step 1: Unifying BHP's DLC structure into a single Australian-headquartered and

Australian tax resident listed company

-- Step 2: Demerging and separately listing BHP's US petroleum business on the NYSE

-- Step 3: Adopting a policy of consistent and value-optimized capital returns to shareholders - which would also help BHP's management to avoid any repetition of prior tendencies to make value-destructive large-scale acquisitions paid for in cash

Our analysis shows that implementation of the Value Unlock Plan could enable management to provide BHP shareholders with an increase in value attributable to their shareholdings of up to c. 48.6% (Limited shareholders) / c. 51.0% (PLC shareholders).

We are making this letter publicly available as a follow-up to our discussions with certain senior members of BHP's management, in order to provide access to the details of the Value Unlock Plan for all of BHP's shareholders, and so that you can work openly with all shareholders with regard to our plan for significantly enhancing shareholder value.

BHP in context

BHP's DLC structure dates back to 2001 and was originally put in place in order to economically combine PLC and Limited without either company actually acquiring or merging with the other in the legal sense.

Today, out of approximately fourteen major corporate groups which adopted a DLC structure over time, BHP is one of only five significantly-sized DLCs[5] in the world which remain, of which the largest by market value is already under review with the objective of creating greater simplification and strategic flexibility[6]. We, along with many other market participants, believe that BHP's DLC structure has far outlived its original utility.

One key aspect of management's inability to deliver optimal value for BHP's shareholders is that the DLC structure has led to a massive build-up of franking credits[7] at Limited.   Australian tax resident companies like Limited should be able to pass on all of those tax credits to shareholders, but BHP cannot do that in an economically efficient way whilst it retains its legacy DLC structure. The Value Unlock Plan would rectify that.

A first-class portfolio of assets which are failing to deliver optimal value for shareholders

Despite the first-class quality of most of BHP's assets, BHP as an investment has underperformed a portfolio of comparable mineral and petroleum companies in recent years across a number of metrics, including total shareholder returns - this is clear from the charts on slides 8 to 10 of the enclosed presentation.

BHP's management took an important first step towards streamlining BHP's portfolio in order to release value for BHP's shareholders by demerging South32 in May 2015. However, in isolation, we believe that the South32 demerger has actually magnified the inefficiencies of BHP's DLC structure by further decreasing the proportion of BHP's EBITDA which is generated by PLC.

In our view, most of BHP's underperformance in terms of total shareholder returns has been driven by the incomplete status of management's streamlining and value-optimization of BHP's group structure and asset portfolio.  The Value Unlock Plan is designed to directly address this and would be the logical next step.

The Value Unlock Plan for BHP - addressing key shareholder value issues 

The Value Unlock Plan is intended to directly address BHP's key shareholder value issues for BHP's owners, with three key steps. Each step is designed to individually contribute to unlocking significant shareholder value and we present them in the order in which they should be undertaken:

Step 1: Unifying BHP into a single Australian-headquartered and Australian tax resident listed company

Following the South32 demerger, we estimate that PLC now generates only c. 8.9%[8] of BHP's EBITDA, but PLC's shares account for 39.7% of BHP's aggregate number of issued shares. The long-term misalignment of profits vs. shareholder base in the DLC structure has led to a massive and continuing build-up of franking credits - totaling US$9.7bn [9] or c. 10% of BHP's market capitalization.

(CONTINUA)

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