Elliott Notches Win as BHP Plans to Put U.S. Shale Assets Up for Sale -- 2nd Update
August 22 2017 - 3:51PM
Dow Jones News
By Robb M. Stewart in Melbourne and Michael Amon in London
Activist investor Elliott Management Corp. scored a victory as
BHP Billiton Ltd. said Tuesday it now plans to sell its onshore
U.S. oil-and-gas operations.
BHP, the British-Australian company that is the world's largest
listed miner by market value, said its American shale operations
aren't core, a departure for a company that holds more than 838,000
acres in shale-rich U.S. regions.
BHP's decision followed months of campaigning by Elliott, the
New York hedge fund that questioned the fit of its shale business
between BHP's petroleum division and its main units that mine iron
ore, copper and other minerals. Elliott accumulated 5% of BHP and
called for sweeping changes, including spinning off the shale
business and launching an independent review of BHP's global
petroleum operations.
"The shale acquisitions were poorly timed," BHP Chief Executive
Officer Andrew Mackenzie said on a conference call Tuesday. "We
paid too much and the rapid pace of early development was not
optimal." Mr. Mackenzie had previously acknowledged the company
overspent on its shale assets.
Shares in BHP, which also announced improved earnings, moved
higher on Tuesday, closing up 2% in London and 1% in Sydney.
"It goes without saying that the performance [of BHP's U.S.
shale business] has not been spectacular," said Fidelis Madavo, an
executive at Public Investment Corp., South Africa's state-run
pension fund and one of BHP's largest investors. "It's not a
surprise" that the company would look to sell the assets, he
said.
Tyler Broda, an RBC Capital Markets analyst, called the shale
decision "a sign that BHP is willing to engage shareholders."
BHP's capitulation on shale oil wasn't a total win for Elliott.
Amid Australian government opposition, the activist investor in May
backtracked on its call for the global miner to incorporate itself
in the U.K. and agreed that BHP continue to be incorporated in
Australia. BHP has also so far resisted Elliott's push for the
company to adopt a consistent plan of buying back shares.
Elliott declined to comment on BHP's plan for its on-shore U.S.
energy business.
Elliott's stake in BHP's London shares is valued at about $1.9
billion. This investment represents one of its largest bets amid of
a flurry of activity that has demonstrated the fund's power to
disrupt some of the world's most vaunted boardrooms.
The hedge fund scored another win this month by moving to block
Warren Buffett's Berkshire Hathaway Inc. from buying
power-transmission company Oncor. Elliott, a key investor in
Oncor's bankrupt parent, Energy Future Holdings Inc., backed a
higher $9.45 billion offer from Sempra Energy.
Earlier this year, Elliott forced the ouster of Klaus
Kleinfield, the chief executive of Arconic Inc., the metal-parts
manufacturer spun off from Alcoa Inc. last year. That battle turned
personal when Elliott released a letter with veiled threats from
Mr. Kleinfield to Elliott's chief, Paul Singer.
Elliott reached a truce with Dutch chemicals company Akzo Nobel
NV last week. Though it failed to force Akzo into sale talks over a
$28 billion takeover bid from U.S. rival PPG Industries, Elliott
got Akzo to separate its specialty-chemicals business and backed
two new nominations to the company's board.
Elliott last week raised its stake in BHP's London-listed shares
to 5% to put it in a position to call a shareholder meeting when it
chooses.
BHP said Tuesday it would complete well trials, swap some
acreage and look at ways to increase the value, profitability and
marketability of its extensive shale operations, while also looking
to sell.
Mr. Mackenzie said Tuesday that the company's plan had been to
become successful in U.S. shale oil and then replicate that around
the world. He also said the company concluded a study two years ago
that showed shale oil opportunities don't exist on the same scale
elsewhere.
Elliott's criticisms forced BHP to backpedal even as its
earnings are turning around. The news about the company's shale
operations was accompanied by a sharp rise in BHP's second-half
dividend as it swung back to an annual profit. BHP on Tuesday
announced a threefold increase in its final dividend.
The company recorded a net profit of US$5.89 billion in the 12
months through June, weaker than analysts had expected. But it was
a sharp improvement from a year-earlier loss of US$6.39 billion
when BHP absorbed an impairment hit on its onshore U.S. oil-and-gas
business and a charge for the fatal 2015 dam failure at the Samarco
iron-ore operation in Brazil.
Since Elliott disclosed ownership of a 4.1% stake in April, BHP
has named a new chairman, Ken Mackenzie, an Australian known for
turning around struggling companies, who is scheduled to take on
the role at the end of August when current chairman Jac Nasser
retires. Elliott has supported Mr. Mackenzie's appointment.
--Ben Dummett and Scott Patterson in London contributed to this
article.
Write to Robb M. Stewart at robb.stewart@wsj.com and Michael
Amon at michael.amon@wsj.com
(END) Dow Jones Newswires
August 22, 2017 15:36 ET (19:36 GMT)
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