By Scott Patterson in London and Robb M. Stewart in Melbourne
The chief executive of the world's most valuable mining company,
BHP Billiton Ltd., faces a vexing test: an activist investor that
appears to be agitating for his ouster.
BHP CEO Andrew Mackenzie has come under fire in recent months
from Elliott Management Corp., a hedge fund founded by Paul Singer
that is pushing for sweeping changes at the British-Australian
mining giant. Unless Mr. Mackenzie acts more aggressively on the
fund's recommendations soon, Elliott believes BHP's board, under
new chairman Ken MacKenzie, should review the CEO's position,
according to people familiar with the matter.
It is the latest big problem for Mr. Mackenzie, who as CEO has
faced challenges ranging from a catastrophic dam failure in Brazil
to a commodity-price collapse that ravaged his company's balance
sheet and forced him to break a promise to never cut the firm's
dividend.
Investors closely watched the new chairman at the company's
annual general meeting in London on Thursday for signs of his
support for the embattled CEO.
"There is much... Andrew Mackenzie and his leadership team have
delivered in the past five years to set up BHP for success," the
chairman told shareholders. "Andrew, I look forward to working with
you and your management team."
The dispute with Elliott has solidified discontent among some
investors with BHP's performance over Mr. Mackenzie's tenure -- a
five-year period during which the company's stock has lagged behind
some peers. BHP's London-listed shares have lost 27% of their value
in that time, compared with a 6% gain for Glencore PLC and an 11%
rise for Rio Tinto PLC, according to FactSet, a data provider.
Critics say he failed to swiftly deliver on promises made when
he assumed the top spot at the company to clean up its debt-laden
balance sheet and exit unprofitable businesses.
Peter O'Connor, an analyst at Shaw & Partners in Sydney and
a former BHP employee, said he would be disappointed if there
wasn't a move to appoint a new CEO by early 2018. While Mr.
O'Connor says he believes Mr. Mackenzie has done a decent job, he
thinks he lacks the support inside the company needed to motivate
employees and lift BHP's performance.
"If it's not working, it's not working," Mr. O'Connor said.
Elliott has zeroed in on long-known BHP quirks such as its
unwieldy dual-listing in London and Sydney and its large U.S.
oil-and-gas arm. Elliott has urged BHP to spin off its U.S.
oil-and-gas assets and criticized the company for
"value-destructive deals," saying management should instead focus
on its "world-beating mining assets" and share buybacks.
The hedge fund recently wrapped up a world tour meeting BHP
investors and has built support for some of its ideas.
Elliott began advocating for changes at BHP last year and
disclosed a big stake in the company this spring. Elliott holds
about 5% of BHP's London shares, with a market value of nearly GBP2
billion ($2.64 billion), according to FactSet.
Craig Evans, a portfolio manager at Sydney fund manager Tribeca
Investment Partners, a BHP investor that has joined Elliott in
criticizing the mining company's performance, says he has been
impressed by comments by BHP's new chairman, Mr. MacKenzie, about
returning cash to shareholders. Tribeca continues to call for
changes to BHP's board, which it has criticized for expensive and
badly timed acquisitions in recent years and lacking a diversity of
experience.
Mr. Mackenzie, the CEO, has generally stood his ground against
Elliott.
BHP rejected collapsing the dual-listing structure into a single
entity as too costly. The company has also rebuffed Elliott's
demand for a regular schedule of buybacks, saying they reduce the
company's flexibility.
BHP initially stood behind the oil-and-gas assets in general and
said they helped diversify its portfolio. Mr. Mackenzie appeared to
reverse course on the company's onshore U.S. oil-and-gas operations
in August, saying the assets weren't core operations. BHP said that
position isn't new.
Mr. Mackenzie, the CEO, said at Thursday's shareholder meeting
that the company continues to review its options regarding its U.S.
shale business. "We will be urgent and patient," he said.
"Your company is in strong shape," he added.
When Mr. Mackenzie assumed the helm of BHP in 2013, he signaled
things were going to change at the mining giant, which had binged
on huge, costly deals, including about $20 billion on U.S. shale
and gas producers just before natural-gas prices plunged.
Mr. Mackenzie hasn't been standing still. He spearheaded the
spin-off of unwanted assets, including nickel, aluminum, coal and
manganese operations, into South32 Ltd., one of the largest
corporate breakups in mining history. He shelved expansion plans,
slashed capital spending and focused on returning cash to investors
via dividends.
But the company stumbled in 2015 amid plunging prices for its
chief commodity, iron ore, and a disaster at its Samarco mine in
Brazil, which it jointly owned with Vale SA, resulted in charges of
more than $1 billion. BHP slashed its dividend in February 2016
despite Mr. Mackenzie's comments the previous year about his
reluctance to contemplate cutting the dividend.
"Over my dead body sounds a little strong, but it is almost
right," he said at the time.
Hugh Young, head of Asia at Aberdeen Standard Investments, a big
BHP investor, said it is fair for Elliott to be critical of past
decisions and investments, though the blame can't be put on Mr.
Mackenzie. "He seems to be doing a decent job in the
circumstances," he said.
In general, investors have cheered the appointment of BHP's new
chairman, Mr. MacKenzie, a former packaging-industry executive with
experience cutting costs and turning around performance. Elliott
was supportive of his appointment.
"He's a different kind of chairman," said Brenton Saunders, an
analyst at BT Investment Management in Sydney, another BHP
investor.
Write to Scott Patterson at scott.patterson@wsj.com and Robb M.
Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
October 19, 2017 08:06 ET (12:06 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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