On April 10, Elliott International, which owns 4% of the shares of BHP Billiton, issued a letter to the board describing proposed changes to the company’s structure, portfolio and capital management in response to what they call “chronic underperformance.” Some of these changes included combining the dual-listed company (DLC) structure and demerging the U.S. petroleum business and a sale or ASX listing for the Australian and other remaining petroleum assets.

“Elliott’s proposals are not new to BHP Billiton,” the company said in a statement. “We have assessed in detail many times over the past years options to unify the DLC structure and enhancements to our portfolio, including divestment of Petroleum.”

According to the company, BHP has discussed the proposals with Elliott over several months and elements have been considered by the board. However, the company said the costs and disadvantages of each recommendation would outweigh the benefits.

“We believe that Elliott materially overstates the potential value that could be created by its proposals,” the company said.

According to BHP, combining the DLC “could destroy at least US$1.3 billion in value to save less than US$2.5 million a year.” Elliott believes BHP’s unification cost of more than US$1 billion is inflated and that it is closer to US$200 million.

Elliott called on management to “work harder and more constructively to find a solution to the unification of BHP’s legacy DLC structure, rather than running a misconceived and negative campaign against dealing with this important value-driven simplification issue.”

BHP said the petroleum business has the potential to create long-term value at high returns. “With our strong business plan, our view is that the petroleum business as a part of the BHP Billiton portfolio currently offers more value to shareholders than if it were a separate entity,” it added.

Regarding the petroleum side of the business, Elliott called for an in-depth, independent review.

According to BHP, Elliott also proposed that BHP Billiton target a net debt ratio of 1.3x EBITDA and then conduct regular off-market buybacks, at a 14% discount, with all excess cash. “This approach does not recognize the cyclical nature of the resources industry,” BHP added.

BHP said it has returned about US$23 billion in buybacks to shareholders, and approximately US$56 billion in dividends since the formation of the DLC.

In response to that, Elliott said BHP has been consistently underperforming and “BHP’s total shareholder returns from November 2008 to date have been 128% lower than Rio Tinto, its nearest peer.”