Hedge fund billionaire Paul Singer reckons his proposal to overhaul the world’s biggest mining company will win over most of its shareholders. A few are already questioning the plans.
Singer’s Elliott Management Corp., with a record of using stakes in companies as a platform to wring concessions for shareholders, on Monday issued a letter to BHP Billiton seeking a spinoff of the miner’s estimated $22 billion of U.S. oil assets, higher returns for investors and changes to its stock exchange listings.
Publication of the 10-page letter follows last year’s recovery in the mining industry from a crisis in 2015. BHP’s profit jumped more than seven-fold in the fiscal first half as commodity prices surged and it cut costs and debt.
“A year ago was not the time to get clever with strategy, it was about getting debt down and surviving,” said Bruce Williamson, chief investment officer at Integral Asset Management in Johannesburg, which owns BHP shares. “Now balance sheets are looking a lot healthier, so people are starting to look at where the long-term value lies.”
Elliott Management, overseeing about $33 billion of assets, owns about 4.1 percent of BHP’s London stock. The hedge fund said the mining company’s management must review its proposals such as a sale of oil and gas business that would be “welcomed by an overwhelming majority of BHP’s owners.”
Biggest Shareholders
One of BHP’s biggest shareholders disagreed with Elliott’s strategy to sell the assets, saying it’s better that the company remain diversified. A second investor, with about 0.5 percent, said they were skeptical about selling assets at this time after oil price declines. They declined to be identified as they weren’t authorized to comment publicly on the proposals.
BHP, which is working with Goldman Sachs Group Inc. to respond to Elliott, said on Monday it had been in talks with the hedge fund for many months, and that the costs and risks associated with the proposals outweigh the benefits. It pointed to returns of $23 billion in share buybacks, and dividends of $56 billion since the mine operator’s dual-listed structure was formed in 2001.
In a statement on Tuesday, Elliott said it was surprised by the “dismissive and premature” response from BHP to its plan, and called on BHP to seek the views of other shareholders.
Some Concerns