WHAT OTHERS THINK

(Updated as of June 12, 2017)

“A spinoff of Petroleum of sale of shale gas assets would be a positive. An acquisition in Petroleum and/or Copper is a potential negative catalyst for BHP.

-Christopher LaFemina, CFA, Jefferies (New York)

“Is there 50% upside to NPV as BHP management suggests? No.”

–Glyn Lawcock, Myles Allsop and Amber MacKinnon, UBS (Sydney)

“Activist investors, in our view, are placing pressure on mining executives to hold the capital discipline line for longer than the market thinks. This is likely to result in the miners moving into a period of value creation.”

–Heath R. Jansen, Citi (Edinburgh)

“BHP Billiton: Bafflingly Hubristic Potash…? What does BHP actually stand for?”

–Paul Gait, Bernstein (London)

“From a sentiment perspective we believe the exit of Onshore would have a more material impact on the share price, removing a non-tier 1 asset which has consumed cash over recent years; it would also accelerate the deleveraging so BHP can step up returns materially to shareholders immediately.”

–Glyn Lawcock, Myles Allsop and Amber MacKinnon, UBS (Sydney)

“We think the current period of shareholder activism could result in a breakup and/or a significant alteration of the company’s structure. In the short term we believe the most value accretive option would be to spin-off the entire Petroleum business, but in the longer term, the company would still need to demonstrate a pathway to grow value.”

–Heath R. Jansen, Citi (Edinburgh)

“We note the North American E&P producers trade at a premium to the global E&P producers, but this is because, international assets typically receive lower multiples than US onshore assets (see note). We see this as the potential value of the BHP’s Onshore business if listed.”

–Glyn Lawcock, Myles Allsop and Amber MacKinnon, UBS (Sydney)

“BHP Billiton has traded at a discount to our calculated net present value (NPV) and to our calculated SOTP valuation for the past few years, which arguably has culminated in shareholder activism. While we recognize there could be 31% uplift from a full or partial breakup of the company – we are less convinced that this will drive sustaining value growth unless a breakup is coupled with a definitive change in strategy.”

–Heath R. Jansen, Citi (Edinburgh)

“The recent intervention from Elliott has, we believed, precipitated this question: what does BHP really stand for? Elliott has clearly rattled the cage, and whilst BHP has come out strongly in opposition to Elliot’s proposals, the impact of those proposals will surely penetrate deeper. Our worry is that in response, BHP may make a strategic misstep in order to regain the upper-hand in the existential debate now swirling around the company.”

–Paul Gait, Bernstein (London)

“Post the financial crisis; BHP has consistently traded at a discount to our calculated NPV – however critically the absolute NPV has also been falling from during this period from a peak of US$250bn in the beginning of 2011, to US$98bn today. In other words the market has been efficient in pricing in value destruction. So the discount being priced by the market today is suggesting to us that the company would destroy value in future”

-Clarke Wilkins, Trent Allen, Harsh Bardia, CFA and Alexander Barkley, Citi (Sydney)

“As we have written many times before, we do not see a place for the oil business in the portfolio. In our view, over time BHP has become one of the most important suppliers to the global steel industry; it has exceptional iron ore and metallurgical coal assets, holds dominant positions in those markets, and until spinning-off South32 had a suite of steel alloying elements as well. It also has an oil business. And it is our firm belief that BHP should concentrate on its areas of strength (and we are in no doubt that those areas are indeed extremely strong), even if that means simply running as a cash cow and generating handsome returns for shareholders.”

–Paul Gait, Bernstein (London)

“In terms of portfolio construction, it is difficult in our view to continue to justify the need to have the petroleum business within the portfolio. If we look at the cash flow being generated by the minerals business has in effect been subsiding capex, exploration and M&A in the petroleum business. Clearly this hasn’t always been the case with the development of the deep water GoM assets. However going forward we expect petroleum to be a drag on the company and it would be more appropriately valued in the market against oil peers versus mining peers.”

-Clarke Wilkins, Trent Allen, Harsh Bardia, CFA and Alexander Barkley, Citi (Sydney)

“There still remains some very fertile options for Elliott to pursue — realizing value in U.S. oil and gas and utilizing tax credits in Australia”

–Peter O’Connor, Shaw & Partners Ltd. (Sydney)

“The M&A track record of major mining companies has been disappointing to say the least given the number of deals that were down at the peak of the cycle and subsequently impaired and BHP is no exception to this. Moreover the buyback track record hasn’t been much better than M&A. If we look at the weighted average price that BHPB has bought back shares over the past decade it is currently 62% above the current share price.”

-Clarke Wilkins, Trent Allen, Harsh Bardia, CFA and Alexander Barkley, Citi (Sydney)

“While the S32 demerger significantly simplified BHP’s minerals assets down to the 4 key pillars, the Petroleum division still comprises a number of small and nonoperated assets that really should not belong in the portfolio”

-Clarke Wilkins, Trent Allen, Harsh Bardia, CFA and Alexander Barkley, Citi (Sydney)

“One way BHP could divest shale while retaining exposure to a potential recovery in oil prices would be to vend the shale assets to a well-regarded shale operator in return for an equity stake in that company, which it could sell down the track.”

–Brenton Saunders, BT Investment Management (Sydney)

“A push for a spinoff of BHP’s U.S. petroleum assets may be achievable.”

–Michael McCarthy, CMC Markets (Sydney)

“You do need a chair that can think more creatively in terms of value creation with unbundlings and break-ups always options to consider.’

–Hanre Rossouw, Investec Asset Management (Cape Town)

“Amid the debate with activist Elliott, BHP seems to be becoming increasingly selective with its petroleum portfolio… [I] would rather see the company take the bold decision than suffer death by a thousand cuts.’”

–Paul Gait, Bernstein (London)

“While our commodities team remains positive on the oil price, we believe that BHP’s oil business is barely generating free cash flow,”

–Goldman Sachs

“BHP’s entire oil portfolio is non-core for a mining company and should be offloaded. The company should take the bold decision rather than suffer death by a thousand cuts.”

–Paul Gait, Bernstein (London)

“We’re not against the idea of spinning it off, it’s more a matter of working out the economics… If you’re getting out of the business, you might as well get out of the entire business.”

–Hugh Young, Aberdeen Asset Management (Singapore)

“[The letter] places a spotlight on BHP’s U.S. onshore business and its place in the broader group…Further debate on that issue is certainly relevant to shareholder concern.”

–Alon Olsha, Macquarie (London)

“It was a good time for BHP to be reshaping its US shale portfolio, particularly given its stated desire to focus more on oil production than gas in the US. Now that we are seeing signs of life in the oil market I think now is the right time for them to be pursuing opportunistic restructuring of US onshore and starting to pull the trigger on some of these greenfields prospects. Chunkier things like moving some of this Hawkville acreage, that will really step up that reshaping.”

–Adrian Prendergast, Morgans (Melbourne)

“We believe that BHP should be looking to divest the entirety of their U.S. onshore assets and begin a formal process for this.”

–Craig Evans, Tribeca Investment Partners Pty (Sydney)

“[Elliott’s proposal] makes sense…It also comes down to capital allocation. The board spent a lot of money on those assets and they need to do something to demonstrate value for shareholders”

–Gabriel Radzyminski, Sandon Capital (Sydney)

“There’s no way the market is ascribing enough value to BHP’s petroleum business. Of the three proposals, petroleum warrants the most interest. It’s definitely the one people should focus on the most and where we need to see most activity.”

–Craig Evans, Tribeca Investment Partners Pty (Sydney)