Elliott resumes push for BHP changes

BHP could add $US22bn of value by axing its dual-listing in favour of an ASX listing, says activist US fund Elliott.

Elliott’s Paul Singer. Pic: Bloomberg

BHP Billiton could add $US22 billion of value by getting rid of its dual-listed structure in favour of an Australian listing, according to New York activist fund Elliott, which has commissioned a report on dissolving the dual-listing.

The move has the potential to raise Australian retail and institutional ownership of the nation’s biggest company from about 41 per cent now to 60 per cent, the report, by FTI consulting, claims.

The report is the first substantial volley fired by Elliott — which has successfully pushed BHP into selling its US shale assets — since Ken MacKenzie became BHP chairman in October.

It has been timed two weeks before BHP’s interim results on February 20, when chief executive Andrew Mackenzie faces investors and the media.

Elliott has called for BHP (BHP) to commit, by the half-year report, to an independent review of the Anglo-Australian dual listing.

“In order to prevent any further value destruction resulting from the current inefficient structure, it is imperative that BHP properly address and move ahead with unification without delay,” the $US33bn fund said in a letter to Ken MacKenzie.

Elliott says unifying the shares would add $US22bn of value, or 18 per cent of BHP’s market capitalisation, and would only cost $US391m.

This is less than the $US1.2bn BHP, which says it has previously thoroughly investigated unification, says it would cost.

BHP, with presumably more detailed information than FTI has, has said the expense of unwinding the dual-listed structure outweighs the benefits.

Elliott’s tilt to unify the structure needs to be viewed through the prism of the hedge fund’s BHP holding, which is through a 5 per cent stake in the company’s London-listed, or PLC, shares.

Unification has been a key plank of Elliott’s restructure calls since it made known its push for change at BHP in April last year, with its original call being for a British domicile of BHP.

PLC shares trade at a discount to Australian, or Ltd, shares, meaning that even if unification did not deliver much value, Elliott’s stake value would be expected to increase as the value of the shares levelled out.

The FTI report claims unification would deliver a $US14.1bn increase in BHP’s market value, reflecting strategic, financial, organisational and structural improvements, and $US8.7bn of value unlocked from fully-franked dividends and discounted off-market buybacks.

The report forecasts Australian ownership of BHP would grow from 41 per cent now (21 per cent institutional and 20 per cent retail) to 60 per cent (30 per cent institutional and 30 per cent retail) because of the increased availability of franking credits that unifying the company would bring.

Elliott’s plan would see BHP with a primary Australian listing and a secondary London listing that FTI says would actually increase its weighting on the FTSE 100.

RBC analyst Tyler Broda said it would be a cleaner structure but questioned the $US22bn value claim.

“The majority of the $US22.4bn comes from a $US14.1bn uplift that‎ is derived via comparable historical situations - there is a wide range of outcomes in the 8 historical unwind situations chosen (0 to +32% outperformance),” he said of FTI’s comparisons.

“We do not perceive BHP to be structurally undervalued, in fact the opposite, so we would be cautious in attributing too much value here.”

Mr Broda said a restructure that released franking credits more efficiently would add value though.

“The report also appears to directly address the potential tax implications, a reason previously that BHP management had given as to why the structure would not provide any benefit,” he said.

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