Hedge fund billionaire Paul Singer wants to overhaul the largest mining company in the world and hopes that his plans to do so will win over his shareholders. Singer’s company, Elliott Management Group, has quite the record of using company stakes as a platform to extract concessions from company shareholders and on Monday, the firm issued a letter to BHP Billiton to seek the spinning off of an estimated $22 billion of US oil assets from the mining company, promising quite high returns for investors, with changes to stock exchange listings.
Discussing the company’s poise for such an undertaking, Integral Asset Management chief investment officer Bruce Williamson notes, “A year ago was not the time get get clever with strategy, it was about getting debt down and surviving. Now balance sheets are looking a lot healthier, so people are starting to look at where the long-term value lies.”
Elliott Management currently oversees approximately $33 billion of assets and owns roughly 4.1 percent of BHP’s stock in London. The hedge fund has said that the management team for the mining company has to look over the proposals, things like the sale of oil and gas businesses which would be “welcomed by an overwhelming majority of BHP’s owners.”
But it looks like BHP does not necessarily agree. In an official statement, the company has responded: “After reviewing the elements of Elliott’s proposal, we have concluded that the costs and associated risks of Elliott’s proposal would significantly outweigh any potential benefits.”
They go on to argue, “There is no obvious discount in BHP Billiton’s trading multiples relative to the weighted average of relevant mining and oil gas peers. BHP Billiton has disclosed the information the market needs to fully value the petroleum business.”
BHP also said that it has regularly reassessed how it can create value, reviewing company structure in the process. Furthermore, the company notes it had, indeed, spoken to Elliott over the course of many months and would still consider deals, but only after a more detailed response to their concerns.
For now, though, it will continue to dismiss Elliott’s plan for buying back several shares as “a formulaic approach without regard for the cyclical nature of the resources industry or the returns available from other uses of cash.”
Elliott management first began investing in 1977, and now has more than $32.7 billion in assets.