Elliott, a large investor in BHP, today released the following statement
regarding growing calls for change from BHP shareholders as the company
prepares to announce a new chairperson.
Over the past few weeks, BHP’s shareholders have made clear that
substantial and meaningful change is needed. That shareholder
frustration is understandable considering BHP’s sustained
underperformance:
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Over the past 2, 5 and 10 years, BHP has underperformed its closest
peer Rio Tinto by 31%, 44% and 11% respectively.
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Over the past 2, 5 and 10 years, BHP has underperformed the ASX 200
Index by 21%, 78% and 39% respectively.
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And even over the longer term, BHP has underperformed Rio Tinto by
a staggering 148% and 628% over 20 and 30 years respectively.
BHP’s weak shareholder returns do not exist in isolation. Current BHP
management has used its owners’ capital unwisely – destroying tens of
billions of dollars in shareholder wealth on an ill-advised expansion
into the U.S. onshore petroleum business. Billions more have been
destroyed on share buybacks at inflated prices.
BHP's Shareholders are Demanding a New Direction
In a note to investors, AMP Capital, the A$165 billion Australian
fund manager, and one of BHP’s largest shareholders, called on BHP to
conduct an “independent assessment” of Elliott’s proposal to
unify BHP’s legacy dual-listed company structure and to “prove the
worth of its US onshore business and why it is compatible in the BHP
portfolio.”
And AMP Capital is just the latest example of a shareholder calling for
change:
“BHP’s dual listed structure is a vestige of the diabolical Billiton
transaction whilst the US shale gas foray has been even more painful.
As in the case of many large companies, being big and being good are
uncomfortable bedfellows.”
- Schroders Investment Management
“BHP…should stick to the knitting, not flirt with diversification for
its own sake (such as Potash) …It is important that…clients who are BHP
shareholders and wish to signal to the Board that they want the company
to urgently consider reforms which are in the best long-term interests
of the company, do so in a constructive manner. That starts with
accepting responsibility for the decisions of the past and resetting the
Board culture and personnel for the future.”
- Note to investors from Escala Partners, a leading
Australian wealth management firm
“As is well known, the Chairman [Jac Nasser] is soon to retire. This
provides a critical opportunity to reset the culture to one that covets
capital efficiency and earnings per share growth and we hold high hopes
that this opportunity will not be wasted. Further, we wonder
whether enough change has taken place at the board level more broadly to
make tough decisions and steer BHP back to a path of success.”
- Tribeca Global Natural Resources, an Australian-based
alternative investment fund
"What we would look for is purely a refreshing of the board,
refreshing the board is something that needs to go on all the time and I
suspect the chairman's role is key in that."
- Aberdeen Asset Management
“Shareholders have long held concerns about BHP’s oil-and-gas
assets. The emergence of activist investors calling for changes has
encouraged healthy debate, and it is clear that BHP is taking it
seriously.”
- BT Investment Management
The Task of the New Chairperson: A Mandate for Change
The impending selection of a new chairperson is an opportunity for BHP
to heed the calls of its shareholders and conduct a thorough and
independent re-examination of its business and its governance. Among
other things, the new chairperson should have the mandate to:
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Initiate an independent review of BHP’s petroleum business and explore
the separation of the Company’s undervalued U.S. oil and gas
operations.
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Unlock BHP’s massive US$10 billion franking credit balance by unifying
BHP’s dual-listing while maintaining BHP’s Australian domicile,
Australian tax residence, primary ordinary ASX share listing, and
Australian headquarters.
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Develop a capital return plan that ensures that future capital
allocation protects the balance sheet over the long term and
prioritizes shareholder returns for BHP’s owners.
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Reconstitute and refresh the BHP Board of Directors.
Next Steps
BHP’s Board is entrusted with a task of considerable responsibility.
BHP’s owners are not just large funds, but hundreds of thousands of
individual shareholders who own BHP shares directly or through their
superannuation funds. Protecting and growing their investment is a
weighty charge. For years, this BHP Board has failed in that task. BHP
recently rolled out a $10 million branding campaign called “Think Big.”
We would prefer BHP to “Think Smart” by addressing the company’s
underperformance holistically and putting shareholders first.
The appointment of a strong, experienced, and visionary chairperson
would be a welcomed first step for BHP. But it would only be a first
step. BHP has an entrenched board, with long-tenured directors having
approved the disastrous acquisitions and poorly timed share buybacks
that are at the root of much of today’s underperformance. A significant
upgrade in directors is needed.
The way forward for the next chairperson is clear. That person will need
to address the company’s poor capital allocation and underperformance,
nominate diverse and qualified directors, and review the executive
management team. BHP’s shareholders have sent a clear message to the
board and management team: it is time for change at BHP.
We hope the Board will listen.
www.fixingBHP.com
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About Elliott:
Founded in 1977, Elliott manages two funds, Elliott Associates, L.P. and
Elliott International, L.P., with assets under management totaling more
than US$32.7 billion.
Elliott’s investors include pension plans, sovereign wealth funds,
hospital and university endowments, charitable foundations,
funds-of-funds, individuals and families, and employees of the firm.
With tens of millions of beneficiary stakeholders located on five
continents, Elliott’s primary focus is on risk control, stability, and
steady growth of capital. With 40 years of experience, it is one of the
oldest hedge funds under continuous management. Today, Elliott has
offices in New York, London, Hong Kong and Tokyo and employs a staff of
410 people, including 145 investment professionals.
Elliott is a multi-strategy hedge fund, carrying out a diverse range of
investment activities. Its strategies include actively managed equity
investments in which Elliott’s objectives include promoting shareholder
value and good corporate governance for the benefit of all shareholders.
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