The BHP Billiton Limited (ASX: BHP) share price jumped nearly 5% in afternoon trade on the back of media reports that an activist investor is encouraging the company to consider demerging its oil assets.
According to the Australian newspaper, Elliott Management Corp, wants BHP to de-list from the London Stock Exchange and sell off its U.S. petroleum assets in a similar way to which it recently spun off other assets into South32 Ltd (ASX: S32).
The media reports stating that Elliott Management values the U.S. petroleum arm at US$22 billion and wants it to be floated on the New York Stock Exchange.
The report clearly caught investors' imagination in the afternoon, with around $4 billion being added onto the company's valuation in a move that is likely to have pleased Elliott Management more than anyone given it owns 4.1% of BHP.
The big question though is whether the share price rise is sustainable, or if Elliott Management's restructure call will be politely ignored by the management team at BHP.
Spinning off BHP's petroleum assets might be a good idea as it would then let investors decide for themselves whether they want direct exposure to the future direction of an oil price that could come under more pressure thanks to supply growth heavily outpacing demand growth.
Notably, oil assets around the world are being prepared for sale onto public markets right now, with the potential float of Saudi state owned business Saudi Aramco reported to be the biggest IPO of all time if it does hit public markets in the year ahead.
BHP stock closed at $25.73 today and could be in for a volatile day tomorrow as the buying has largely been triggered by a substantial shareholder talking up the company's valuation. It's not unusual for a large shareholder to claim a company is undervalued, but it is unusual for the share price to rise so rapidly in response to shareholder activism.
BHP Billiton's management may also be unimpressed by a single shareholder telling them how to run the company and I expect some of today's share price gains could be given back tomorrow.
