Miner BHP Billiton's shares spike on hedge fund manager's move

The big four banks lead the bourse higher followed closely by utilities and consumer staples while healthcare stocks

Elliot's $3.8 billion investment, or 4.1 percent stake, in BHP shows how USA hedge funds are increasingly exporting their activist shareholder playbook overseas. A few are already questioning the plans.

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 USA oil arm and revise its capital return policy.

Its last month's stock price volatility remained 1.93% which for the week stands at 1.86%.

Elliott Associates' argument is that investors do not fully appreciate the value of BHP's petroleum assets. "Now balance sheets are looking a lot healthier, so people are starting to look at where the long-term value lies".

Elliott, which has disclosed an economic interest in 4.1 per cent of BHP's shares, said creating a single entity would have benefits, partly because of the way dividends are taxed in Australia. Rio Tinto Group, the world's second-largest mining firm, is one of only five other companies worth at least $15 billion to have a dual-listing structure, according to Elliott.

Elliott declined to comment on its investor strategies. Activist investor Elliott Associates believes BHP Billiton should collapse its dual-listed structure and separate its United States petroleum assets, according to the Australian Financial Review.

"Based on commonly utilized valuation metrics for comparable businesses, the indicated value for BHP's USA petroleum business is [approximately] US$22 billion, which is well in excess of the current analyst consensus valuation for that business", said the Elliott Funds, which hold 4.1% of BHP Billiton plc.

New York-based Elliott Advisors, a significant shareholder in the Anglo-Australian company, argued in a letter to directors and the media that its plan could unlock as much as 50 percent more value in the stock. "You can't smooth your dividends if you have volatile underlying earnings".

The hedge fund has also called for the miner's petroleum business to be spun off and listed on the New York Stock Exchange, estimating the value of the business at $22 billion.

The Australian government in 2001 approved the merger of Melbourne-based BHP and London-based Billiton based on a number of conditions created to ensure the miner kept close ties to Australia. "Further debate on that issue is certainly relevant to shareholder concern".

Elliott has proposed a three-step plan for BHP in a detailed 39-page presentation. The fund's still embroiled in a dispute with Arconic's Chief Executive Officer Klaus Kleinfeld. Samsung said last month it would not adopt such a structure.

Pressure from such investors will ensure the focus of managers in the industry is fixed on investor returns, and on avoiding the kind of empire-building acquisitions in the past that have led to oversupply and under-performance. The firm said it owns about 4.1% of BHP's London-listed shares and has rights to acquire 0.4% of its Australian stock.

Following the May 2015 spin-off of BHP's base metals and coking coal assets into South32, Elliott estimated that the London-listed Plc part of the business generates only around 8.9% of group operating profits while its shares account for 39.7% of BHP's total.

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