Elliott Sends Letter and Presentation to the Directors of BHP Billiton Outlining Shareholder Value Unlock Plan

PR68135

LONDON, Apr. 10, 2017 /PRNewswire=KYODO JBN/ --

     Elliott today sent a letter to the directors of BHP Billiton outlining a

plan to unlock value and improve capital returns to shareholders.  The Elliott

funds, together with certain of their affiliates, hold a long economic interest

in respect of approximately 4.1% of the issued share capital of BHP Billiton

plc ("PLC")[1].

    In the letter and the accompanying presentation, Elliott outlined a plan

that could enable management to provide BHP shareholders with an increase in

value attributable to their shareholdings of up to c. 48.6% for Limited

shareholders and c. 51.0% for PLC shareholders by following three key steps:

    - Step 1: Unifying BHP's Dual-listed company structure into a single

Australian- headquartered and Australian tax resident listed company

    - Step 2: Demerging and separately listing BHP's US petroleum business on

the NYSE

    - Step 3: Adopting a consistent and value-optimized capital return policy -

an opportunity to monetize the substantial franking credit balance through

discounted off-market buybacks

    Elliott is making the letter and presentation publicly available as a

follow-up to its discussions with senior members of BHP's management.   The

goal is to provide details of The BHP Shareholder Value Unlock Plan to all of

BHP's shareholders, so that BHP can engage openly with all parties on the plan

to unlock shareholder value.

    The letter and presentation can be downloaded at

http://www.valueunlockplanforbhp.com

    Full text of the letter follows:

    [1] In addition to their long economic interest in PLC, the Elliott funds,

together with certain of their affiliates, hold rights to acquire up to

approximately 0.4% of the issued shares in BHP Billiton Limited ("Limited").

    -----

    April 10, 2017

                           http://www.valueunlockplanforbhp.com

    LETTER TO THE DIRECTORS OF EACH OF BHP BILLITON LIMITED ("LIMITED") AND BHP

BILLITON PLC ("PLC" AND TOGETHER WITH LIMITED, "BHP")

    Your attention is drawn to the important information which is set out in

the Appendix to this letter. This letter and a related presentation are being

made publicly available at http://www.valueunlockplanforbhp.com [1]

    To the directors of BHP:

    Introduction

    We are writing to you on behalf of Elliott Associates, L.P. and Elliott

International, L.P. (together, the "Elliott Funds")[2], which together with

certain of their affiliates hold a long economic interest in respect of

approximately 4.1% of the issued share capital of PLC[3].

    Despite being a leading global resources company with a portfolio of

best-in-class large-scale diversified mining assets, in recent years BHP as an

investment has underperformed a portfolio of comparable mineral and petroleum

companies.

    Unfortunately, despite the progressive and successful demerger of South32

in May 2015, BHP's management still cannot deliver optimal shareholder value

without (i) resolving the shareholder value inefficiencies caused by its

dual-listed company ("DLC") structure; (ii) monetizing the intrinsic value of

BHP's US petroleum business [4], the value of which is being obscured by its

continued inclusion within the group; and (iii) enhancing capital management to

an optimal level.

    The BHP Shareholder Value Unlock Plan, which we outline in this letter and

the enclosed presentation (the "Value Unlock Plan"), is designed to directly

address these issues with three key steps:

    - Step 1: Unifying BHP's DLC structure into a single

Australian-headquartered and

    Australian tax resident listed company

    - Step 2: Demerging and separately listing BHP's US petroleum business on

the NYSE

    - Step 3: Adopting a policy of consistent and value-optimized capital

returns to shareholders - which would also help BHP's management to avoid any

repetition of prior tendencies to make value-destructive large-scale

acquisitions paid for in cash

    Our analysis shows that implementation of the Value Unlock Plan could

enable management to provide BHP shareholders with an increase in value

attributable to their shareholdings of up to c. 48.6% (Limited shareholders) /

c. 51.0% (PLC shareholders).

    We are making this letter publicly available as a follow-up to our

discussions with certain senior members of BHP's management, in order to

provide access to the details of the Value Unlock Plan for all of BHP's

shareholders, and so that you can work openly with all shareholders with regard

to our plan for significantly enhancing shareholder value.

    BHP in context

    BHP's DLC structure dates back to 2001 and was originally put in place in

order to economically combine PLC and Limited without either company actually

acquiring or merging with the other in the legal sense.

    Today, out of approximately fourteen major corporate groups which adopted a

DLC structure over time, BHP is one of only five significantly-sized DLCs[5] in

the world which remain, of which the largest by market value is already under

review with the objective of creating greater simplification and strategic

flexibility[6]. We, along with many other market participants, believe that

BHP's DLC structure has far outlived its original utility.

    One key aspect of management's inability to deliver optimal value for BHP's

shareholders is that the DLC structure has led to a massive build-up of

franking credits[7]  at Limited.   Australian tax resident companies like

Limited should be able to pass on all of those tax credits to shareholders, but

BHP cannot do that in an economically efficient way whilst it retains its

legacy DLC structure. The Value Unlock Plan would rectify that.

    A first-class portfolio of assets which are failing to deliver optimal

value for shareholders

    Despite the first-class quality of most of BHP's assets, BHP as an

investment has underperformed a portfolio of comparable mineral and petroleum

companies in recent years across a number of metrics, including total

shareholder returns - this is clear from the charts on slides 8 to 10 of the

enclosed presentation.

    BHP's management took an important first step towards streamlining BHP's

portfolio in order to release value for BHP's shareholders by demerging South32

in May 2015. However, in isolation, we believe that the South32 demerger has

actually magnified the inefficiencies of BHP's DLC structure by further

decreasing the proportion of BHP's EBITDA which is generated by PLC.

    In our view, most of BHP's underperformance in terms of total shareholder

returns has been driven by the incomplete status of management's streamlining

and value-optimization of BHP's group structure and asset portfolio.  The Value

Unlock Plan is designed to directly address this and would be the logical next

step.

    The Value Unlock Plan for BHP - addressing key shareholder value issues

    The Value Unlock Plan is intended to directly address BHP's key shareholder

value issues for BHP's owners, with three key steps. Each step is designed to

individually contribute to unlocking significant shareholder value and we

present them in the order in which they should be undertaken:

    Step 1: Unifying BHP into a single Australian-headquartered and Australian

tax resident listed company

    Following the South32 demerger, we estimate that PLC now generates only c.

8.9%[8] of BHP's EBITDA, but PLC's shares account for 39.7% of BHP's aggregate

number of issued shares. The long-term misalignment of profits vs. shareholder

base in the DLC structure has led to a massive and continuing build-up of

franking credits - totaling US$9.7bn [9] or c. 10% of BHP's market

capitalization.

    Absent a clearly defined optimal path to monetizing those franking credits,

they are not being appropriately valued by the market.

    Over the last 16 years since the completion of the DLC merger, PLC's shares

have traded at an average discount of 12.7% to Limited's shares. In our view,

that sort of price dislocation stems from the economic asymmetry described

above, as between PLC and Limited, which in turn undermines the fundamental

principles and objectives of the DLC structure, being the achievement of

equivalent economic returns on their shares as between PLC and Limited

shareholders.

    Unification[10] would:

    - create a single Australian-headquartered and Australian tax resident

unified BHP company which would continue to be managed from Australia. That

company could retain BHP's current stock market listings and continue to be

included within key FTSE and ASX stock indices;

    - put BHP's Limited and PLC shareholders on the same footing, eliminating

the current trading value mismatch between the two lines of shares;

    - allow BHP to access the value represented by its existing massive

US$9.7bn franking credit balance, plus future franking credits generated by the

business, for the benefit of all BHP shareholders[11];

    - significantly enhance the scope for,  and  optimize the value impact of,  

BHP share buybacks - unified BHP's management could return the substantial

upcoming excess cashflow to shareholders by way of 14% discounted off-market

share buybacks. That would be a highly value-accretive way of management

deploying a large amount of

    capital without any additional operational risk - effectively buying BHP's

own first- class core assets at a meaningful discount to their market price;

    - remove any need to use the Dividend Share Mechanism, thereby avoiding

wastage of valuable franking credits;

    - help management to avoid making badly timed acquisitions paid for in

cash, given the opportunity to deploy significant cash resources in

value-enhancing post-unification share buybacks;

    - increase the scope for management to pursue appropriate acquisition

opportunities using unified BHP's own shares as consideration; and

    - remove certain other material tax, operational and strategic

inefficiencies caused by the DLC structure.

    We estimate that the BHP group's tax and other deal costs for implementing

our unification plan would be both reasonable and far outweighed by the

significant shareholder value unlock opportunity to which it is key. In

addition, we do not see any material regulatory obstacles to BHP implementing

our unification plan - for example, a unified BHP would be tax resident and

headquartered in Australia, so there should be no reason for concern on the

part of FIRB[12].

    Step 2: Demerging and separately listing BHP's US petroleum business

    Based on commonly utilized valuation metrics for comparable businesses, the

indicated value for BHP's US petroleum business is c. US$22bn, which is well in

excess of the current analyst consensus valuation for that business.

    Our analysis indicates that the US petroleum business has not been able to

successfully contribute to shareholder value at BHP since (i) it provides no

meaningful diversification benefits to BHP as a whole; (ii) there is a lack of

synergies between BHP's US petroleum business and its mining assets; and (iii)

its intrinsic value is being obscured by bundling it with BHP's other assets.

    We believe that within the confines of the existing group, BHP's US onshore

acreage opportunities are extremely limited.   BHP has competing capital

allocation alternatives - including its world- beating mining assets such as

those within its iron ore division, and highly value-accretive post-

unification off-market BHP share buybacks at a 14% discount to market price. In

the circumstances, BHP's management simply cannot justify allocating the

capital which the US onshore assets would need for the US petroleum business to

realize its growth potential or meaningful corporate expansion activities.

    A demerger and separate listing of BHP's US petroleum assets on the NYSE

would:

    - unlock the intrinsic value of the US petroleum business and provide

shareholders with access to what we believe would be a much higher market value

for that business;

    - allow the demerged US petroleum business to be properly capitalized and

pursue value- accretive strategic opportunities;

    - allow BHP's management to fully focus on deriving value from BHP's

unrivalled portfolio of first-tier mineral assets; and

    - allow BHP's investors to tailor their own desired exposure to US energy

and petroleum equities rather than being constrained by the fixed acreage

composition and petroleum vs. minerals mix currently being offered by BHP.

    We see the demerger of BHP's Gulf of Mexico assets in combination with the

US onshore petroleum assets as providing a standalone US petroleum business

with consistent cash flow to fund its own further expansion, allowing BHP to

increase its focus on its core competencies and also helping the value of BHP's

remaining core portfolio to positively re-rate.

    Step 3: Adopting a policy of consistent and optimized capital returns to

shareholders

    BHP is expected to generate c. US$31bn[13] of excess cashflow in the next 5

years, assuming the current 50% payout ratio of net income.

    Unfortunately, BHP has previously used excess cash to make

value-destructive acquisitions when it acquired certain Fayetteville assets and

Petrohawk. Management should avoid making badly timed acquisitions for cash and

instead return its substantial upcoming excess cashflow to shareholders by way

of highly value-accretive post-unification 14% discounted off-market share

buybacks.

    A clearly defined and communicated ongoing 14% discounted off-market

buyback program undertaken by a unified Australian tax resident BHP which has

demerged its US petroleum business would:

    - enable BHP to purchase its own shares at a substantial discount,

achieving an overall cost which is c. 5.6% lower[14] than the price at which

BHP can currently buy back its shares;

    - release up to c. 66% more[15] franking credits to shareholders; and

    - facilitate an initial off-market buyback of at least US$6bn.

    We estimate that within the five year period ending June 2022, in addition

to the continuation of the current 50% dividend payout ratio, adopting this

capital return policy as part of the Value Unlock Plan could result in[16]:

    - a total of c. US$33bn being returned to shareholders via share buybacks;

    - c. 29% of core BHP's share capital being repurchased;

    - total EPS accretion from buybacks of c. 33% in respect of the shares

remaining in issue after the 14% discounted buyback program; and

    - an increase in BHP's NPV of   c. US$20bn (c.21% of BHP's current market

capitalization)[17].

    Moreover, BHP could deliver these sorts of significantly enhanced returns

for shareholders whilst still retaining an "A" grade credit rating[18].

    The potential to unlock a significant amount of shareholder value at BHP

    Our analysis indicates that implementation of the Value Unlock Plan could

provide BHP shareholders with an increase in the value attributable to their

shareholdings of up to c. 48.6% (Limited shareholders) / c. 51.0% (PLC

shareholders)[19].

(Photo: http://mma.prnewswire.com/media/488297/Value_Unlock_Plan.jpg )

    Source: Company filings and Elliott's estimates.

    Independent analysts' views

    Independent research analysts have commented[26] on many of the issues

which underpin the Value Unlock Plan and a selection of those comments is set

out in the Appendix to this letter.

    Conclusion and next steps

    BHP's management has a remarkable opportunity to significantly enhance

shareholder value. We urge each of you, consistent with your duties as

directors of BHP, to review the Value Unlock Plan in light of the very real and

measurable benefits which we believe they can have for BHP's shareholders.

    Given that our analysis shows that implementation of the Value Unlock Plan

could provide BHP's shareholders with an increase in the value attributable to

their shareholdings of up to c. 48.6% (Limited shareholders) / c. 51.0% (PLC

shareholders), we expect that a full and open review of our plan by management

in the near term would be welcomed by an overwhelming majority of BHP's owners.

    We look forward to you as BHP's directors announcing on a timely basis the

start of your work in formally reviewing the Value Unlock Plan, along with a

commitment to publishing within a reasonable timeframe the details of the scope

and results of that review.

    Yours faithfully,

    Elliott Advisors (HK) Limited

    APPENDIX

    Independent analysts' comments on DLC issues

    "DLC Structures are not permanent. Based on our analysis we have seen that

DLC structures are not intended to be permanent structures and nor are they

beneficial for shareholders forever. We believe that now is an appropriate time

for BHP to consider unifying the DLC structure." - UBS, July 14, 2014

    "[A] collapse of the DLC such that all shareholders are holders of Ltd

shares, would see all dividends utilise franking credits going forward. We

believe that BHP will be capable of maintaining the fully franked divided to

all shareholders following a collapse of the DLC, given that the bulk of

earnings are generated by the Australian assets (in particular iron ore) and

the payout ratio should be maintained at ~50%." - UBS, July 14, 2014

    "New proposal will lead to wastage of future franking credits...:

Australian shareholders can benefit from tax relief on dividends ("franking

credits"). Under the proposed change to the dividend funding mechanism, Ltd's

dividends to plc would have franking credits attached, but these credits can

only be monetized by Australian shareholders. At 30th June, BHP Ltd had

    $10.9bn of franking credits, equivalent to ~4 years of fully franked Ltd

dividends. We believe certain Australian shareholders may consider the leakage

of franking credits to plc shareholders, which they are unable to monitise, as

disadvantaging Ltd shareholders." - JP Morgan - September 22, 2015

    Independent analysts' comments on BHP's US petroleum business

    "We have always struggled with US onshore asset as in our view they do not

fit in BHP's strategy of building large scale low cost tier 1 assets and are

arguably worth more to someone else." - Citigroup - April 22, 2016

    "On strategy, we think there is no real benefit from portfolio

diversification per se and unless we see a dramatic outperformance of oil

versus iron ore (clearly not the case at present) we see no reason for BHP to

trade ahead of Rio Tinto." - Bernstein - January 5,  2017

    Independent analysts' comments on capital returns

    "If the DLC were to be collapsed, then every dollar returned via a buyback

would be done through the buyback of Ltd shares which provided sufficient

franking credits existed, could be done at a ~14% discount to the prevailing

share price on the day. This is more accretive than buying back Plc shares as

the discount at which Plc shares trade to Ltd shares has historically been

narrower than 14%. The off-market buyback of Ltd shares also enables

distribution of franking credits to shareholders that can utilise them" - UBS -

July 14, 2014

    "Despite ＞US$30b spent, failed tilts at RIO and Potash Corp and overpaying

for US Shale suggest M&A is not BHP's raison d'etre." - Citigroup - May 27, 2016

    "At spot prices BHP would have even stronger free cash flow generation,

largely thanks to iron ore, and be able to significantly increase shareholder

returns. Dividend yield could increase to ＞6% and even if a more conservative

balance sheet was run it would still allow for ~US$5b to be returned per year."

- Citigroup - Feb 21, 2017

    IMPORTANT INFORMATION

    This letter is provided solely by Elliott. Many of the statements in this

letter are the opinions, interpretations and/or beliefs of Elliott which are

based on its own analysis of publicly available information. Elliott is

expressing those opinions, interpretations and beliefs solely in its capacity

as an investment adviser to the Elliott Funds. Any statement or opinion

expressed or implied in this letter is provided in good faith but only on the

basis that no investment decision(s) will be made based on, or other reliance

will be placed on, any of the contents herein by others. Nothing in this

letter, the enclosed presentation or in any related materials is a statement of

or indicates or implies any specific or probable value outcome for BHP's

shareholders in any particular circumstance. Certain statements and opinions

expressed or implied in this letter are necessarily based on or involve

assumptions, because not all information on BHP is publically available. If any

of these assumptions are incorrect, it could cause our statements and/or

opinions to differ materially.

    The Elliott Funds, together with certain of their affiliates, hold a long

economic interest in respect of approximately 4.1% of the issued share capital

of PLC[27]. The Elliott Funds and/or any of their respective affiliates (i) may

at any time in the future, without notice to any person (other than as required

under, or in compliance with, applicable laws and regulations), increase or

reduce their holdings of any BHP entity's shares or other equity or debt

securities and/or may at any time have long, short, neutral or no economic or

other exposure in respect of any BHP entity's shares or other equity or debt

securities; and/or (ii) may now have and/or at any time in the future, without

notice to any  person (other than as required under, or in compliance with,

applicable laws and regulations), may establish, increase and/or decrease long

or short positions in respect of or related to any BHP entity's shares or other

equity or debt securities, in each case irrespective of whether or not all or

any part of the Value Unlock Plan is, or is expected to be, implemented. As a

result of its arrangements with the Elliott Funds and/or their affiliates,

Elliott has a financial interest in the profitability of the Elliott Funds'

positions in or relating to BHP.

    This letter is published solely for informational purposes and is not, and

should not be construed as, investment, financial, legal, tax or other advice

or recommendations. This letter is not intended to be and does not constitute

or contain any investment recommendation as defined by Regulation (EU) No

596/2014. No information in this letter should be construed as recommending or

suggesting an investment strategy.

    This letter has been compiled based on publicly available information

(which has not been separately verified by the Elliott Funds, Elliott, or any

of their respective affiliates) and does not:

    (i) purport to be complete or comprehensive; or

    (ii) constitute an agreement, offer, a solicitation of an offer, or any

advice or recommendation to enter into or conclude any transaction or take or

refrain from taking any other course of action (whether on the terms shown

herein or otherwise).

    The market data contained in or utilized for the purposes of preparing  

this letter is (unless otherwise specified) as at the end of trading hours on

April 7, 2017. Changes may have occurred or may occur with respect to such

market data and neither the Elliott Funds, nor Elliott, nor any of their

respective affiliates is under any obligation to provide any updated or

additional information or to correct any inaccuracies in this letter.

    The information in this letter contains 'forward-looking statements.'

Specific forward-looking statements can be identified by the fact that they do

not relate strictly to historical or current facts and include, without

limitation, words such as "may", "can",  "will", "expects", "believes",

"anticipates", "plans", "estimates", "projects", "targets",  "forecasts",

"seeks", "could", "would" or the negative of such terms or other variations on

such terms or comparable terminology. Similarly, statements that describe any

objectives, plans or goals of the Elliott Funds and/or Elliott and/or their

respective affiliates are forward-looking. Any forward-looking statements are

based on the current intent, belief, expectations, estimates and projections of

Elliott. These statements are not guarantees of future performance and involve

risks, uncertainties, assumptions and other factors that are difficult to

predict and that could cause actual results to differ materially. Accordingly,

you should not rely upon forward-looking statements as a prediction of actual

results and actual results may vary materially from what is expressed in or

indicated by the forward-looking statements.

    No representation or warranty, either expressed or implied, is provided in

relation to the accuracy, completeness or reliability of the information

contained herein, nor is it intended to be a complete statement or summary of

the securities, markets or developments referred to herein. It should not be

regarded by recipients as a substitute for the exercise of their own judgment.

You should obtain your own professional advice and conduct your own independent

evaluation with respect to the subject matter herein. The information contained

herein has been made available on the basis that the recipient is a person into

whose possession such information may be lawfully delivered in accordance with

the laws of the jurisdiction in which the recipient is located.

    Each of the Elliott Funds, Elliott, and their respective affiliates

expressly disclaims any responsibility or liability for any loss howsoever

arising from any use of, or reliance on, this letter or its contents as a whole

or in part by any person, or otherwise howsoever arising in connection with

this letter.

    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. Today,  Elliott has offices in New York, London, Hong Kong

and Tokyo.   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.

    [1] Together with this letter we are today making publicly available a

presentation that details the points set out below, including our related

analysis (the "Presentation"). The Presentation and this letter are available

at our website http://www.valueunlockplanforbhp.com.

    [2] Founded in 1977, Elliott Management Corporation ("EMC") manages the two

Elliott Funds, with assets under management totalling more than US$32.7 billion

as at the date of this letter. Elliott Advisors (HK) Limited ("Elliott") is an

affiliate of the Elliott Funds and EMC.

    [3] In addition to their long economic interest in PLC, the only other BHP

positions that the Elliott Funds and their affiliates hold are the rights to

acquire up to approximately 0.4% of the issued shares in Limited. The Elliott

Funds may at any time increase or reduce their holdings of, or economic

exposure in respect of, any BHP entity's shares or other equity or debt

securities. See the important information which is set out in the Appendix to

this letter for further details.

    [4] The "US petroleum business" means BHP's US onshore petroleum assets and

its Gulf of Mexico assets.

    [5] Based on DLC structures with a combined market capital of over US$15bn.

    [6] As announced by Unilever on April 6, 2017.

    [7] When Limited, as an Australian tax resident company, pays tax on its

income it can record that tax paid as franking credits. Limited then attaches

those franking credits to any dividend it makes, or to any income component of

a share buyback which it

    undertakes. Those franking credits can then be used by Australian tax

resident shareholders who receive them to offset their own

    liability to Australian tax on the dividend income, or income component of

any share buyback consideration, which it receives from Limited. Further detail

on franking credits, their potential wastage in the current DLC structure and

their monetization is set out in the Appendix to the Presentation.

    [8] Calculated by EBITDA contribution split for the last reported twelve

month period, excluding third-party products and unnamed assets. Based on

Elliott estimates of asset ownership between Limited and PLC, using the asset

split at the time of the DLC inception and assumes (i) no subsequent

intra-group asset transfers between PLC and Limited; and (ii)  that assets

located in Australia that were acquired from Western Mining were acquired by,

and continue to be held directly or indirectly by, Limited.

    [9] Based on last reported figures.

    [10] Unification would be implemented by way of inter-conditional

share-for-share schemes of arrangement of each of Limited and

    PLC under which Limited and PLC shareholders would become shareholders in a

single unified BHP public company listco incorporated in England & Wales, which

would 100% own both of then-delisted Limited and PLC.

    [11] Whilst unlocked franking credits could only be used by Australian tax

resident shareholders, non-tendering shareholders should benefit from

incremental accretion and share demand resulting from monetization of BHP's

substantial franking credit balance.

    [12] The Foreign Investment Review Board of Australia, which would review a

unification transaction involving a resulting single unified BHP public company

listco which is incorporated in England & Wales.

    [13] Free cash flows from operations less free cash flows from investing

and dividends,  assuming the current 50% payout ratio of net income. Calculated

by Elliott as the average of the figures produced by analysts at major

international investment banks.

    [14] The assumptions utilized in calculating this figure are described in

the Presentation.

    [15] The assumptions utilized in calculating this figure are described in

the Presentation.

    [16] Assumes annual off-market share buybacks starting at US$6bn and then

utilizing excess cash flow whilst maintaining a 1.3x net debt / EBITDA target

thereafter. Cash flow levels are Elliott's estimates based on a 1.3x net debt /

EBITDA target. Also assumes share price appreciates annually based on constant

multiples and that BHP conducts annual buybacks at a 14% discount to the post

annual EPS accretion share price.

    [17] The NPV is calculated in respect of (i) the increased share price

implied by the EPS accretion, applied to the reduced number of shares in issue

post buybacks; and (ii) the capital returned through the discounted off-market

share buybacks up to June 2022.

    [18] "A" grade credit rating means an "A-, A or A+" credit rating. This

could be retained whilst maintaining a net debt/EBITDA ratio of 1.3x (or other

appropriate metric).

    [19] Please see the Presentation for further details.

    [20] These per-share numbers are in respect of the current aggregate number

of BHP shares in issue, except for the franking credits from buybacks number,

which is based on the number of Limited shares currently in issue.

    [21] Enterprise value measured before demerger of BHP's US petroleum

business. Assumes that the BHP share price post-unification would be the

weighted average (by number of shares in issue at Limited and PLC) of the

current share prices of Limited and PLC. The post-unification (before demerger)

enterprise value is therefore assumed to remain the same as BHP's current

enterprise value.

    [22] Valuation based on mean values of US petroleum and unified core BHP

shown in the valuation slides in the Presentation.

    [23] Valuation based on the NPV of (i) the increase in core BHP's share

price implied by the EPS accretion from the share buybacks which are proposed

by Elliott in the Presentation, applied to the reduced number of shares in

issue post buybacks; and (ii) the capital thereby returned to shareholders.

    [24] NPV of franking credits released from Elliott's proposed discounted

off-market buyback program.

    [25] Assumes US$2.5bn of BHP's existing net debt is allocated to the US

petroleum business (c. 0.9x net debt / consensus 18E EBITDA).

    [27]  In addition to their long economic interest in PLC, the only other

positions that the Elliott Funds and their affiliates hold in or relating to

BHP are the rights to acquire up to approximately 0.4% of the issued shares in

Limited.

    [26] The analysts' views mentioned in this letter shall not be taken to

mean or imply (i) that the research reports referred to are a representative

sample of all research reports on the topics concerned; or (ii) that the

authors of the reports or their employing banks/brokers endorse in any way the

Value Unlock Plan or the views set out in this letter.   We have emboldened, by

way of emphasis, certain parts of the original text of the analysts' views

which appear in this letter.

SOURCE: Elliott Advisors (UK) Limited