THE DISTILLERY: Trim BHP

Jotters aren't too surprised by Marius Kloppers' decision to stand down from BHP, with some predicting a leaner future on the cards.

BHP Billiton chief Marius Kloppers will be replaced by the miner’s non-ferrous metals chief Andrew Mackenzie. It’s all Australia’s business commentators are talking about this morning, quite literally. Let’s just get into it.

The Australian Financial Review’s Chanticleer columnist Tony Boyd writes that it’s a simple matter of record that BHP needed to shift its stance to cost cutting and capital discipline, which means Kloppers's time was over.

"Rightly or wrongly, shareholders believe they have not shared in the resources boom despite the fact BHP has been outperforming all its peers. It is the only leading mining stock not to have cut its progressive dividend payment policy during the global financial crisis. But it has underperformed the broader market. Nasser is sending a signal to investors by replacing chief executive Marius Kloppers with an executive who has deep experience in the low-margin, high-volume chemical industry.”

Many have observed that Kloppers completes the final quartet of big time mining chief executives that have been moved on. The Australian Financial Review’s Matthew Stevens points out:

"While everyone knew Anglo’s Cynthia Carroll was for the high jump and that Tom Albanese’s grip on authority was made tenuous by Alcan, I reckon that this time last year very few would have imagined the replacement of the leaders of each of the big four. Certainly, the idea that Kloppers and fellow Billiton emigre Big Mick Davis might be looking for jobs at the same time is sort of mind-boggling. Not that either needs to work again, mind you. Kloppers, for example, is sitting on about 1.5 million unvested BHP shares, courtesy of the company’s short- and long-term bonus programs.”

Business Spectator’s Stephen Bartholomeusz says it’s not surprising that Kloppers is the last of the quartet to be ousted, because he’s had the most success of them all.

"Where the Rio and Anglo successions were abrupt and forced on BHP’s rivals, Kloppers’ was long in the planning and by mutual consent. Much of that is attributable to Kloppers himself who followed, he said today, advice given to him by former BHP chief executive Paul Anderson on the day his got the job nearly six years ago that he should immediately start thinking about his successor. Kloppers gave chairman Jac Nasser and his board a number of strong internal candidates for the job. The appointment of Marcus Randolph or Alberto Calderon wouldn’t have surprised or unsettled the market, or the company.”

That being said, frustration on the BHP register has been building for some time, as explained by The Australian’s Andrew White. It started in early 2011 when Kloppers was talking about $80 billion in projects over five years.

"Evy Hambro of the world’s biggest resource investor, Blackrock, was the loudest, calling the company short-sighted for not having a share buyback in place to soak up shares at a time when the price was falling because of concerns over its Petrohawk purchase. But there was also persistent behind-the-scenes pressure on the company from investors to adopt more shareholder-friendly policies. Directors visiting fund managers to talk about another company in their portfolio would be baled up about the returns from BHP, a stock with the ability to make or break fund managers’ performance fees.”

Fairfax’s Malcolm Maiden says it’s unlikely that Kloppers’s replacement will preside over a period of the company’s history that’s similar to his predecessor.

"Kloppers’ time at the top of BHP was punctuated by the global financial crisis, but until the end of 2011 also marked by phenomenal demand for commodities as China industrialised. During that boom miners paid the going rate to boost their production and takeovers were definitely on the agenda. Prices were so good that production costs were a lower-order issue – but when the boom started to cool towards the end of 2011, everything changed. Kloppers began winding BHP’s expansion plans back, and squeezing operational costs.”

Business Spectator’s Robert Gottliebsen says it’s now up to Mackenzie to determine whether Kloppers ends up being one of the great BHP chief executives.

"The American shale sector is going to be the biggest global mineral development for the next two decades and Kloppers has BHP Billiton and its shareholders in the box seat. But its one thing to be in the box seat and another to make it work for shareholders – that’s now Mackenzie’s job.

The Australian’s Barry Fitzgerald is similarly focused on BHP’s shale gas exposure and the number 60 billion.

"That’s what BHP’s push into the game-changing shale oil/gas business in America is going to consume in US dollars in the next five years, and probably as much again in the following five years – all that after having already stumped up $US20 billion as its initial entry into the business in 2011. Success in the shale push could redefine BHP, and given that the growth in capital expenditure in iron ore, coal, copper and conventional oil and gas tails off from here on in, the nascent US shale business is to fast become the focus of future growth, certainly during Mackenzie’s turn at the wheel.”

The Australian’s John Durie takes us into the selection process that ultimately anointed Mackenzie to replace Kloppers.

"Long-time BHP adviser John Gardner, from Heidrick & Struggles, helped Nasser in identifying potential external candidates, which left him with four internal and two external candidates. Just whether any of the internal candidates, such as strategy chief Alberto Calderon or Marcus Randolph, walk remains to be seen, but given that top jobs have just been filled at Rio Tinto and Anglo American, those choices will be made down the track. Nasser said no retention plans were in place to keep the team together.”

The Australian Financial Review’s Anne Hyland gives us a hint of how Mackenzie will differ from Kloppers.

"What BHP Billiton’s shareholders can expect from Mackenzie, a 56-year-old Scotsman, when he takes over on May 10 is a CEO who will be both analytical and operationally focused, say those who have worked with him. This contrasts with the Kloppers style that focused on transactions, marketing and management consultant edicts.”

And finally, The Herald Sun’s Terry McCrann says BHP was actually making three decisions in one with Mackenzie’s replacement of Kloppers.

"The first two are obvious. The decision to end the Kloppers era; and the decision to choose relative newcomer to BHP Billiton, and yet the half-decade older, Andrew Mackenzie as his successor. The ‘third decision’ has not yet been made, but it was implicit in the other two. That of selecting a successor to Jac Nasser when, self-evidently not if, he retires as BHPB chairman. Nasser said yesterday that there’s never a perfect time to change CEOs, but there can be a bad time. Left unsaid was a clear example from one month ago – the abrupt sacking of Rio Tinto’s CEO Tom Albanese. But a less dramatic example is the perennial two-step with chairmen and CEOs. You do not want to get into a situation where you are replacing both at the same time. Or, to avoid that, by extending one of them too long.”

In other news, well, there isn’t any. The Kloppers announcement completely overshadowed the BHP results, where half-year profit was down sharply as expected.

Perhaps they’ll be unpacked tomorrow.

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