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BHP BILLITON PLC - BHP Billiton Review of Elliott Proposal

Release Date: 12/04/2017 07:05
Code(s): BIL     PDF:  
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BHP Billiton Review of Elliott Proposal

BHP Billiton Plc
Registration number 3196209
Registered in England and Wales
Share code: BIL
ISIN: GB0000566504

NEWS RELEASE

Release Time       IMMEDIATE
Date               12 April 2017
Release Number     14/17


BHP BILLITON REVIEW OF ELLIOTT PROPOSAL

This update provides further information in response to the letter dated 10 April 2017
from Elliott Associates, L.P. and Elliott International, L.P. (Elliott) describing its
proposals for changes to the BHP Billiton Group’s Dual Listed Company (DLC)
structure, portfolio and capital management.
Please also refer to our presentation dated 12 April 2017 titled “Response to Elliott
Proposals” http://www.bhpbilliton.com/media-and-insights/news-
releases/2017/04/bhp-billiton-review-of-elliott-proposals.
The Board and management regularly review the DLC structure and our portfolio of
assets so as to optimise long-term value for all shareholders. Consistent with this
focus, the Company has simplified its business in recent years.
Andrew Mackenzie, Chief Executive Officer, said: “BHP Billiton is now a stronger,
simpler company, well-positioned for future economic conditions. We are confident
we have everything in place to increase returns and significantly grow shareholder
value.”
Elliott’s proposals are not new to BHP Billiton. We have assessed in detail many
times over the past years options to unify the DLC structure and enhancements to
our portfolio, including divestment of Petroleum. Consistent with our capital allocation
framework, we regularly consider buybacks as an alternative use for our excess
cash.
Management has been engaged in discussions with Elliott over many months on its
proposals and is familiar with the views expressed by Elliott. The elements of Elliott’s
proposal have also been considered by the Board.
Against the background of the ongoing assessment by the Board and management
of our DLC, our portfolio of assets and the capital allocation framework, we have
provided detailed feedback to Elliott on the challenges inherent in their proposals.
Our presentation today is consistent with that feedback.
The Board and management have concluded that the costs and associated
disadvantages of each element of Elliott’s proposal would significantly outweigh the
potential benefits. We believe that Elliott materially overstates the potential value that
could be created by its proposals:
?   Unifying the DLC structure in the manner proposed by Elliott could destroy at
    least US$1.3 billion in value to save less than US$2.5 million a year - for no
    identifiable material or strategic benefit.

?   Petroleum remains core to the BHP Billiton strategy and has the potential to
    create significant long term value at high returns. With our strong business plan,
    our view is that the Petroleum business as a part of the BHP Billiton portfolio
    currently offers more value to shareholders than if it were a separate entity.
    Furthermore, BHP Billiton has disclosed the information the market needs to
    value the Petroleum business.

?   Share buybacks are a core element of our capital allocation framework. We have
    returned to shareholders approximately US$23 billion in buybacks, and
    approximately US$56 billion in dividends since the formation of the DLC.
    Decisions on buybacks need to consider the cyclical nature of the resources
    industry and returns available from other uses of cash.
Unification of the DLC
Under the DLC, BHP Billiton has a premium listing on the London Stock Exchange
(LSE) and a primary listing on the Australian Securities Exchange (ASX).
Elliott proposes that the Group replace the DLC with a single United Kingdom
incorporated company with a primary listing in the United Kingdom on the LSE and
with a secondary listing of Chess Depository Interests in Australia on the ASX.
All shareholders would lose from the substantial costs that would be incurred were
this proposal to be implemented. The associated incremental taxes and duties could
result in a potential loss in value of at least US$1.3 billion. The savings from no
longer having to maintain the DLC are estimated to be less than US$2.5 million per
annum.
After assessing the proposal, we have not identified any material or broader strategic
benefits from unification in the manner proposed by Elliott.
The unification proposed by Elliott would result in a transfer of value from BHP Billiton
Limited shareholders to BHP Billiton Plc shareholders. BHP Billiton Limited shares
currently trade at a 14 per cent premium to BHP Billiton Plc shares. BHP Billiton
Limited shareholders would face additional downside risk if the new London listed
shares created by Elliott’s proposal were to trade at a blended price of the existing
BHP Billiton Plc and BHP Billiton Limited shares.
The proposed restructure could waste franking credits. If implemented, franking
credits would need to be attached to the ordinary dividends paid to all shareholders -
including to investors not tax resident in Australia who could not use the franking
credits.
South African shareholders, who comprise 17 per cent of the BHP Billiton Plc
register, would face particular risk as they would not obtain capital gains tax roll-over
relief and might need to pay tax under Elliott’s proposal.
The restructure could also make buybacks less attractive from a shareholder
perspective. Unifying the DLC would reduce the proportion of franking credits that
could be used when the Group conducts off-market buybacks of securities quoted in
Australia on the ASX – reducing the potential returns for all shareholders.
BHP Billiton Limited shareholders and BHP Billiton Plc shareholders would need to
separately approve the proposed unification.
Unification is not a prerequisite for BHP Billiton to manage its portfolio of assets or to
conduct on- or off-market buybacks.
US Petroleum demerger
BHP Billiton invests in commodities in which it has a competitive advantage and
through which it can generate strong margins through the cycle. Oil and gas fit these
criteria. Over the past five years, the Petroleum business has accounted for more
than 20 per cent of Group production and more than 30 per cent of Group Underlying
EBITDA.
BHP Billiton expects that shareholders will benefit from the realization of high
returning growth options in BHP Billiton’s US Petroleum business given the current
market outlook as well as successful efforts to commercialise its onshore US
investments, reduce costs and invest in high quality brownfield and exploration
opportunities.
BHP Billiton’s scale, balance sheet strength and diversification are a competitive
advantage in oil and gas. As part of a larger group, the Petroleum business can
secure major opportunities that would be unavailable to a smaller independent
company. As part of a diverse portfolio, BHP Billiton’s US Petroleum business faces
less pressure on reserve replenishment and sustaining volumes than a pure play oil
and gas company, allowing it to focus on value creation. BHP Billiton can apply
mining expertise in the Petroleum business and oil and gas expertise in its minerals
business, raising the operational performance of both.
The value case for a US Petroleum demerger is unclear. BHP Billiton has disclosed
the information the market needs to fully value the Petroleum business.
Elliott proposes that BHP Billiton demerge its US petroleum assets into a separate
New York Stock Exchange (NYSE) listed entity. A NYSE listing would not suit all
current BHP Billiton shareholders.
Implementation of Elliott’s proposal would also involve significant risk. It would leave
a sub-scale residual Petroleum business within BHP Billiton, put pressure on the
Group’s strong balance sheet and we would lose significant diversification benefits.
By themselves, the US Petroleum assets would face higher financing and operating
costs because they would no longer benefit from BHP Billiton’s strong balance sheet,
global procurement systems and the functional support offered by BHP Billiton’s
operating model.
As noted above, BHP Billiton regularly reviews its portfolio and this has resulted in
the sale of over US$2.5 billion of Petroleum assets over the last four years.
Buybacks
BHP Billiton has a strong track record of returning cash to shareholders. Since the
formation of the DLC, we have returned to shareholders approximately US$23 billion
in buybacks of BHP Billiton Limited and BHP Billiton Plc shares, and approximately
US$56 billion in dividends.
Under BHP Billiton’s capital allocation framework, debt reduction, incremental
dividends, buybacks, growth and acquisitions compete for excess free cash flow.
Buybacks are a core element of this framework.
Under the capital allocation framework, BHP Billiton assesses the value buybacks
could create compared to the competing objectives of further strengthening the
balance sheet, investing in long term value growth and making additional dividend
payments.
Elliott proposes that BHP Billiton should mechanistically target a net debt ratio of 1.3x
EBITDA (or other similar metric) and then conduct regular off-market buybacks, at a
14 per cent discount, with all excess cash. This approach does not recognise the
cyclical nature of the resources industry. If this approach had been adopted in 2012,
BHP Billiton’s net debt would now be more than double its current level - placing the
Company’s balance sheet at risk, particularly in a time of volatile markets.
Conclusion
The Board and management of BHP Billiton remain committed to optimising
sustainable, long-term value in the interests of all shareholders. We are confident in
our strategy, and will continue on our deliberate path to continue to grow shareholder
value and build on our long history of proven results.

(1) Dividends exclude FY2017 H1 interim dividend and include distribution of shares in South32 to BHP Billiton shareholders.
(2) BHP Billiton generates tax credits on profits generated by its Australian assets. These franking credits can be used by
    shareholders who are tax resident in Australia to offset tax liabilities and for some shareholders excess franking credits are
    refundable.
(3) Dividends exclude FY2017 H1 interim dividend and include distribution of shares in South32 to BHP Billiton shareholders.


Further information on BHP Billiton can be found at: bhpbilliton.com


Sponsor: UBS South Africa (Pty) Limited




Media Relations                                   Investor Relations

Australia and Asia                                Australia and Asia

Gabrielle Notley                                  Tara Dines
Tel: + 61 3 9609 3830 Mobile: +61 411 071 715     Tel: +61 3 9609 2222 Mobile: +61 499 249 005
Email: Gabrielle.Notley@bhpbiliton.com            Email: Tara.Dines@bhpbilliton.com

Paul Hitchins                                     Andrew Gunn
Tel: +61 3 9609 2592 Mobile: +61 419 315 001      Tel: +61 3 9609 3575 Mobile: +61 402 087 354
Email: Paul.Hitchins@bhpbilliton.com              Email: Andrew.Gunn@bhpbilliton.com

Fiona Hadley                                      United Kingdom and South Africa
Tel: +61 3 9609 2211 Mobile: +61 427 777 908
Email: Fiona.Hadley@bhpbilliton.com               Rob Clifford
                                                  Tel: +44 20 7802 4131 Mobile: +44 7788 308 844
Amanda Saunders                                   Email: Rob.Clifford@bhpbilliton.com
Tel: +61 3 9609 3985 Mobile: +61 417 487 973
Email: Amanda.Saunders@bhpbilliton.com            Elisa Morniroli
                                                  Tel: +44 20 7802 7611 Mobile: +44 7825 926 646
United Kingdom and South Africa                   Email: Elisa.Morniroli@bhpbilliton.com

Neil Burrows                                      Americas
Tel: +44 207 802 7484 Mobile: +44 7786 661 683
Email: Neil.Burrows@bhpbilliton.com               James Wear
                                                  Tel: +1 713 993 3737 Mobile: +1 347 882 3011
North America                                     Email: James.Wear@bhpbilliton.com

Bronwyn Wilkinson
Mobile: +1 604 340 8753
Email: Bronwyn.Wilkinson@bhpbilliton.com




BHP Billiton Limited ABN 49 004 028 077           BHP Billiton Plc Registration number 3196209
LEI WZE1WSENV6JSZFK0JC28                          LEI 549300C116EOWV835768
Registered in Australia                           Registered in England and Wales
Registered Office: Level 18, 171 Collins Street   Registered Office: Neathouse Place
Melbourne Victoria 3000 Australia                 London SW1V 1LH United Kingdom
Tel +61 1300 55 4757 Fax +61 3 9609 3015          Tel +44 20 7802 4000 Fax +44 20 7802 4111




Members of the BHP Billiton Group which is
headquartered in Australia

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