Elliott Management Corp's activist campaign to shake up Anglo-Australian mining group BHP Billiton relies on tested U.S. shareholder activism strategies to deliver one of the hedge fund's biggest ever bets on a company.
U.S. activist investors have for years called on companies to deploy various financial engineering techniques, from spinning off assets to tweaking their corporate structure, in order to boost the value of their stock.
Elliot's $3.8 billion investment, or 4.1 percent stake, in BHP shows how U.S. hedge funds are increasingly exporting their activist shareholder playbook overseas. Ellliott' s BHP demands are a mix of strategies it developed going after U.S. companies, such as Marathon Petroleum Corp, as well as foreign targets, such as South Korea's Samsung Electronics Co Ltd.
"The questions and techniques activist shareholders developed in the U.S. pertain to how investors value companies universally. The question of whether BHP is undervalued applies whether the company is Australian or American," said Erik Gordon, a professor at the University of Michigan's Ross School of Business.
Elliott declined to comment on its investor strategies.
BHP on Monday rejected a plan by Elliott, a hedge fund with $31 billion in assets under management, to scrap the miner's dual company structure, split off $22 billion worth of oil assets, and return more cash to investors, arguing that the costs would outweigh any benefits.
All the elements of this plan have been tried by Elliott before, some more successfully than others. Elliott in October called for Samsung to adopt a holding company structure by splitting itself in two and pay out a 30 trillion won ($26.75 billion) special dividend. Samsung said last month it would not adopt such a structure.
In the case of Marathon Petroleum, the oil refining and transportation company announced in January it would seek to spin off its Speedway gas station business following pressure from Elliott.
The fact that Elliott has a commodity trading business helped Elliott familiarize itself with BHP. Crucially, Australia and Britain have, in general, more shareholder-friendly corporate regimes, emboldening activists such as Elliott.
For example, just a 5 percent stake in an Australian company enables a shareholder to call for an extraordinary shareholder meetings. In the United States, the threshold is often double that, and in many cases calling a special meeting is not an option made available to shareholders at all.
"Asking the right question as an activist shareholder is not enough, if you do not have a stick available to you, you become like a professor who has no power. People answer your question cause your technique might work," Gordon said.
(Reporting by Greg Roumeliotis in New York; Additional reporting by Michael Flaherty in New York; Editing by Lisa Shumaker)