In April, Elliott Management urged BHP Billiton Limited (NYSE:BHP) to spin off its oil drilling business. It's a high-profile fight in the mining industry that could have a material impact on BHP's corporate outlook and performance. But you can't look at this proposal in isolation because BHP Billiton has meaningfully transformed itself over the past three years. Here's some history that is important to keep in mind.

Way back when

BHP Billiton didn't become BHP Billiton until 2001. That was when Broken Hill Properties (it changed its name to BHP Limited in 2000) and Billiton merged. The purpose was to create a diversified mining giant, with exposure to commodities including iron ore, coal, oil, aluminum, copper, nickel, manganese, and chrome.

A BHP Billiton employee.

Image Source: BHP Billiton Limited.

The idea that bigger was better in commodities worked reasonably well through the first decade of the new millennia. The driving force was demand out of fast-growing China. And then, in 2011, something changed. Commodity prices across the board started to move lower. At the same time, expansion projects made when prices were heading higher were beginning to come online, adding extra supply at exactly the wrong time.

Miners across the globe found themselves in financial difficulty. BHP was no different. The one commodity that notably held up for a spell was oil, which didn't start to head materially lower until mid-2014. Cost-cutting and pulling back on growth projects, where possible, was the new normal. 

But BHP decided to go a step further: It spun off South32 in fiscal 2015. This new company took on all or part of BHP's alumina, aluminum, thermal coal, manganese, nickel, silver, lead and zinc businesses. Mostly it pulled apart what was created when Broken Hill Properties and Billiton merged in 2001, leaving BHP to focus on iron ore, copper, metallurgical coal, and oil.  

There was cost-cutting, too

While the South32 spinoff is the enormous change over the last three years, the company's cost-cutting efforts shouldn't go unnoticed. After adjusting for the spinoff, BHP's capital spending went from a touch over $16 billion in fiscal 2014 to roughly $7.7 billion in 2016, a drop of around 50%. In fact, capital spending was even higher than that in fiscal 2013 at $22.4 billion -- putting the total decline through 2016 at 65% over four years.  

BHP Capital Expenditures (TTM) Chart

BHP Capital Expenditures (TTM) data by YCharts.

That, however, wasn't the only place BHP Billiton was saving money. It also managed to trim its wage and salary expenses by nearly 30% between fiscal 2014 and 2016. In other words, BHP's management team was working hard to adjust to a very different market environment. And it apparently thought its collection of assets was a good foundation for the future, or it would have only shoved more into South32.  

Doing nothing

That brings us to early 2017, when Elliott Management started a public push to get BHP Billiton to increase shareholder value through a trio of actions, notably including that split off its oil business. When BHP pushed back, basically suggesting that it had already made significant changes and wanted to give its approach more time to play out, Elliott accused the company of taking a 'do nothing approach' to its suggestions.    

Oil is one of BHP's most profitable businesses.

Oil is a big part of BHP Billiton's long-term plan. Image Source: BHP Billiton Limited.

If you look at the history, however, BHP has a point. It's hardly been sitting still, and the spin-off of South32 is still quite fresh. Moreover, the oil business has historically been one of its most high-margin business units. Getting rid of all of the oil division doesn't seem like it will make BHP a better company over the long term, even if it results in a short-term boost for shareholders.  

A changing giant

If you are looking for short-term gains, then Elliott's push for change might appeal to you. However, BHP has been working hard to adjust its business to better compete today and in the future. Oil is expected to be a big part of that. For long-term investors, it seems more prudent to give the already massive changes that have occurred time to play out. BHP Billiton has changed a lot of the last three years, so it's smart to take a breather.