By Elizabeth Knight
At around midnight on Monday in Europe, the giant activist shareholder publicly pushing for an overhaul of BHP Billiton's structure and assets, Elliott Associates, launched its second grenade at the Big Australian's board and management - this time with ominous claims to have the reinforcement of other large shareholders.
The timing of the latest onslaught will have been clinical.
A delegation from Elliott Associates will be front and centre at the Bank of America Merrill Lynch investment conference in Barcelona on Tuesday watching BHP's chief executive, Andrew Mackenzie, on the podium outlining his company's vision and performance.
Team Elliott has plenty of form on being relentless in its efforts to push for change and this week's instalment is unlikely to be the last. Indeed, BHP will be bracing itself for what looks like the inevitable bid from Elliott for board representation.
BHP Billiton chief executive Andrew Mackenzie will outline his company's vision and performance in Barcelona.Credit: Bloomberg
The latest missive from Elliott, sent internationally to investors, brokers and media, is an aggressive assault on the board and management's strategy, performance and the billions of dollars Elliott says the company has lost from a series of poor investments, ill-timed, profligate share buybacks and even unsustainable tax avoidance measures.
If the BHP board thought it had neutralised Elliott with a 46-page fightback proposal in which it argued the costs of Elliott's proposed changes outweighed any benefits, then it clearly underestimated this activist shareholder, which has a weighty history of forcing corporate change in other organisations in which it invests.
"Current management's response to our Value Unlock Plan has been inflexible and defensive, showing instead that they prefer to do nothing new to improve performance and to optimise shareholder value from BHP's first-class portfolio of assets," Elliott says.
It contends the "current management's response to the Value Unlock Plan is unconvincing and misses the point. Shareholders deserve better than a negative campaign by management seemingly designed to avoid taking positive or proactive steps. To make matters worse, management have based their position on a series of unsupportable claims, including: [the] $US1.1 billion of phantom dual-listed company (DLC) unification costs".
If the BHP board thought it had neutralised Elliott with a 46-page fightback proposal, it clearly underestimated this activist shareholder. Credit: Jessica Shapiro
At the heart of Elliott's plans is addressing what it dubs BHP's chronic underperformance.
It itemises three areas in which it contends BHP has trashed its own shareholders' capital: "$US23 billion destroyed through the ill-fated foray into the US onshore petroleum sector; $US8 billion spent on petroleum exploration activities with no apparent value created; and $US9 billion destroyed in share buybacks made at inflated market prices".
Paul Singer's Elliott Associates has ramped up its attack on BHP.Credit: Bloomberg
The Elliott 2.0 attack differs a little from the original launched last month, mainly because it now suggests that collapsing the dual-listed structure would see the unified BHP incorporated in Australia – with BHP remaining, per the original proposals, Australian-headquartered and an Australian tax resident.
BHP is unlikely to go for this given the UK shareholders might lose their index weighting.
Elliott says "BHP's management has offered no more than the possibility of a sale of their most challenged asset, Fayetteville, at a potential 85 per cent loss, as a means of somehow 'rescuing' shareholder value".
However, the basic idea of getting rid of the dual listing, demerging - or in some way getting rid of the oil and gas assets - and engaging in share buybacks is much the same.
Elliott has been doing an international milk run over the past month, speaking to other investors to enlist their help to push BHP to undertake a series of changes that it says will unlock $US46 billion for shareholders.
It's a massive claim and one with which the BHP board has violently disagreed. Analysts' response has been mixed.
But Elliott reckons shareholders with tens of billions of BHP stock have come on board, and in particular have given broad and deep-rooted support for its plan - particularly the idea of getting rid of the oil and gas assets.
It won't nominate any specific allies, but is set to begin another round of meetings with investors and will soon visit Australia again.
In relation to the oil and gas assets, Elliott says "BHP's management has offered no more than the possibility of a sale of their most challenged asset, Fayetteville, at a potential 85 per cent loss, as a means of somehow 'rescuing' shareholder value".
Armed with what Elliott sees as a fair measure of support, it is calling for management and the board to initiate an in-depth, open and truly independent review of BHP's petroleum business, to be overseen by a committee that includes management, shareholder representatives and outside experts, with full disclosure of all results on a timely basis.
This is another idea that is very unlikely to fly with BHP - which says the directors are the shareholder representatives and therefore responsible for strategy, and will not be happy to outsourcing it to an outside committee.
The ball is now back with BHP, whose response could well be to ignore Elliott unless it believes it has sufficient support to force change. BHP believes that despite the aggressive rhetoric from Elliott, the latter has softened its stance on formulaic share buybacks, thus putting the warring parties closer together in their views on this issue.
Delivering his address at the Merrill Lynch conference, Mackenzie said: "At this conference a year ago, I outlined ambitious plans to improve returns and grow the value of BHP. Since that time, we have made consistent progress and we are confident that continued delivery of these plans, from our stronger base today, could grow the value of our company by up to 50 per cent and almost double the return on capital."