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HONG KONG (Reuters Breakingviews) - BHP has checked the right boxes in naming former packaging executive Ken MacKenzie as chairman. The 53-year old Canadian lopped heads and boosted returns at his last job, and was unsentimental about weak business lines. Activist investor Elliott is pleased. Other shareholders should be too.
Elliott is rightly critical of BHP's lacklustre market performance, in particular compared to archrival Rio Tinto. Rio's Australian-listed shares are up around 10 percent in the last five years where BHP has fallen about 20 percent.
Graphic: BHP versus Rio: reut.rs/2rCI2oW
The hedge fund attacked poor decisions including "disastrous acquisitions” and badly timed buybacks, as well as an inefficient dual-listing structure. It estimated an overhaul could increase shareholder value by nearly 50 percent. BHP argued the costs of Elliott's plan outweighed the benefits, and Elliott has since backed away from the move to consolidate the listing structure.
The appointment does not necessarily mean surrender to the rest of the activist's agenda. Most notably, BHP may still keep its U.S. oil business, rather than spinning it off. But hiring MacKenzie makes sense whether one agrees with Elliott's specific proposals or not.
MacKenzie's record turning around Amcor, an $14 billion Australian food and industrial packager, offers a clue to how he could behave at BHP. An engineer by training, he came out of the corner swinging an axe, replacing 75 percent of the firm's top 80 managers in his first two years. In 2013 he demerged Amcor's Australasian paper and packaging and U.S. distribution businesses, while snapping up a packaging company from Rio for a low price. Returns on capital doubled to 20 percent; Amcor's share price is up 140 percent since 2012.
MacKenzie has been on BHP's board since September, so he has met with Elliott already and has an idea of what the challenges are. The track record is not necessarily a perfect guide to future performance: manufacturing is a very different business from commodities, subject to a different set of macroeconomic headwinds. And BHP is a very politicized Australian beast, which might limit his room for manoeuvre. But at least he appears to have broad support to make dramatic change.
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