Under Pressure

BHP facing uncertain future as shareholders push for strategic change

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Ratings agencies and analysts have raised concerns about the future of mining major BHP in the wake of actions taken by so-called activist shareholders.

The mining giant’s second-largest holder of its London-listed shares, fund manager Elliot Associates & Elliot International, has been picking at BHP since August last year and, in April this year, made public its demands for strategy changes, arguing that nearly $40-billion in shareholder value had been lost by the miner.

The fund manager, which holds a 4.1% interest in BHP, proposed that the major unify its dual-listed company structure into a single Australian-headquartered and -tax-resident listed company, maintaining a primary listing in London and a secondary listing in Sydney.

It also suggested that BHP demerge and separately list its US petroleum business on the NYSE, while also adopting a consistent and value-optimised capital return policy to monetise the franking credit balance through discounted off-market buy-backs.

Elliot argued at the time that its analysis indicated that the US petroleum business had not been able to successfully contribute to shareholder value at BHP, since it provided no meaningful diversification benefits for BHP as a whole, and since there was a lack of synergies between BHP’s US petroleum business and its mining assets.

It also argued that the intrinsic value of the petroleum assets was being obscured by bundling it with BHP’s other assets.

Australian Treasurer Scott Morrison was quick to warn the US fund manager that plans to shift BHP’s primary listing offshore would be considered a criminal offence in Australia, and that directors of the company would be held liable.