(Bloomberg) -- BHP Billiton Ltd.'s new chairman is about to shake things up at the world's largest mining company, according to Sanford C. Bernstein Ltd., which says that Ken MacKenzie will probably undertake a full-scale review of assets and strategy, and may demerge the petroleum business.
“Despite management's reluctance to change at this stage, we believe that BHP is about to experience a radical shift in strategy, driven by the arrival, effective Sept. 1, of the new chairman,” analysts including Paul Gait said in a note. MacKenzie used to run a packaging business, and his “detachment from the mining sector makes him, we believe, inevitably far more objective on the best direction BHP should take from now on.”
BHP has been the target of an activist investor campaign in recent months spearheaded by Elliott Management Corp., which has rounded on management decisions that the fund claims have destroyed about $40 billion in value. MacKenzie's arrival to replace Jacques Nasser has been welcomed by Elliott, and Bernstein said it understands that the investor and MacKenzie share common views on the future of the company.
“We welcome the arrival of a chairman who is detached from industry pressures, can take a fresh look at the BHP portfolio and is unencumbered by the need to defend legacy investment decisions and portfolio/commodity choices,” Gait said, upgrading BHP to outperform. “BHP is not the natural owner of oil assets, as we see no obvious synergies between mining and petroleum production. Splitting the two businesses apart, on the other hand, could allow the disclosure of their full value.”
Price Target
BHP's stock in London climbed as much as 1.9 percent to 1,251 pence on Wednesday, the highest level since April. Bernstein's price target is 1,500 pence, and it said it values the mining business alone at 1,310 pence a share, according to the July 5 report.
Montreal-born MacKenzie, a skier and yachtsman, joined BHP's board in September 2016 after lifting the market value of global packaging packaging giant Amcor Ltd. by more than 150 percent in a decade-long spell as chief executive officer that ended in 2015.
Last week, outgoing Chairman Nasser said the timing of BHP's $20 billion spree into U.S. shale in 2011 was a misstep, and that if the miner could go back in time, it wouldn't have invested in the assets. “If you had to turn the clock back, and if you knew what we knew today, you wouldn't do it," he said.
While BHP owns and operates some of the world's best assets, it has lagged behind its peers and under-performed the commodities it's exposed to, according to Bernstein. “The company's price has strongly deviated from what we think is its intrinsic value,” Gait wrote.
To contact the reporter on this story: Jasmine Ng in Singapore at jng299@bloomberg.net.
To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net, Jake Lloyd-Smith, James Poole
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