BHP Billiton hit by hedge fund pressure to restructure

By James Regan Jamie Freed

SYDNEY (Reuters) - BHP Billiton came under fresh pressure to restructure on Monday as activist hedge fund Elliott Advisors urged the miner to scrap its dual-corporate system, split off its U.S. oil arm and revise its capital return policy.

Elliott outlined the proposal in a letter to directors at BHP, adding the miner to a string of firms it has sought to shake up including Samsung Electronics Co Ltd, Dutch paints and chemicals group Akzo Nobel NV and brewer SABMiller Holdings Inc.

The letter comes at a time when miners enjoy an unexpected rise in prices for many commodities. But in late February after unveiling a nearly eight-fold rise in half-year profit, BHP Chief Executive Andrew Mackenzie said price corrections loomed, notably for coal and iron ore.

"The goal (of the letter) is to provide details of the BHP shareholder value unlock plan to all of BHP's shareholders so that BHP can engage openly with all parties on the plan," Elliott said in a statement, disclosing an economic interest of about 4.1 percent of London-listed BHP Billiton PLC.

That stake was worth $3.81 billion based on Friday's closing share price, Reuters calculations showed. Elliott said it also held rights with affiliates to buy up to 0.4 percent of Sydney-listed BHP Billiton Ltd, worth about $372 million.

BHP did not immediately provide comment on the matter when contacted by Reuters, but CEO Mackenzie has previously rejected the idea of spinning off oil assets and Chairman Jac Nasser has said overhauling the dual-corporate structure could be too costly.

VALUE MISMATCH

Elliott, which manages over $32.7 billion in global assets, in its letter advised BHP to bring its British entity under the control of its Australian arm.

That would create a single Australian-headquartered firm that would retain BHP's current stock market listings and keep them in Sydney's and London's benchmark share price indices, according to Elliott.

The result would place holders of BHP's London and Sydney shares on the same footing, eliminating a trading value mismatch, it said.

Elliott also proposed spinning off BHP's U.S. oil and petroleum arm - which it said was worth around $22 billion - and listing it on the New York Stock Exchange.

The fund also advised BHP to avoid making badly timed acquisitions and use cash flow instead to return more to shareholders. At present, BHP has a minimum underlying attributable profit payout ratio of 50 percent.

Elliott said its BHP plan could increase value by up to 48.6 percent for holders of BHP's Sydney-listed shares and 51 percent for holders of its London-listed shares.

The Sydney shares closed 4.6 percent higher at A$25.73 on Monday, while the London shares were up over 5 percent in early trade.

Eliminating the British arm to release tax benefits relevant to holders of the Sydney stock was not a new idea, said an Australian fund manager with shares in BHP, who had not closely reviewed Elliott's proposal and so declined to be identified.

"I think BHP has probably been asked 10 times in the last 15 or 17 years to unwind the (dual-corporate structure)," the fund manager said. "These guys (Elliott) are talking their own book in a way. If they are a shareholder and can agitate and get the share price up that is a win."

BHP Billiton was created in 2001 through the merger of the Australian Broken Hill Proprietary Co and the Anglo-Dutch Billiton PLC.

(Reporting by James Regan and Jamie Freed; Editing by Stephen Coates and Christopher Cushing)