Hess Corp. (HES:US) ended a four-month proxy battle with billionaire Paul Singer’s Elliott Management Corp., adding three of the activist investor’s five board nominees and heading off a shareholder vote on competing candidates.
Elliott withdrew its proposed slate and supported the company’s five board nominees in exchange for the three seats, Hess said in a statement today. With departures, nine of the 14 people on the New York-based company’s board are new. The agreement was announced hours before Hess was expected to announce the results of shareholder voting at its annual meeting in Houston.
“The settlement is a big win for Elliott,” said Stephen Simko, a Chicago-based analyst for Morningstar Inc. (MORN:US), who rates Hess four out of five stars. “If you look at the credentials, the energy experience and the independence of this board, it’s dramatically better than it was.”
Mark Williams, a former member of Royal Dutch Shell Plc (RDSA)’s executive committee nominated by Hess and elected by shareholders today, was voted non-executive chairman at the new board’s first meeting, Hess said today in a statement. That fulfilled a May 10 promise by the company to strip the chairmanship from Chief Executive Officer John B. Hess.
Elliott, the second-largest shareholder with a 4.5 percent stake (HES:US), has been calling since January for changes at Hess. The company should streamline operations and suffered from poor oversight by a board that lacked experience and independence, Elliott said. Hess, formed 80 years ago by John Hess’ father, expects to get $3.4 billion this year from selling assets as it exits refining and divests gasoline stations and other units to focus on oil exploration and production.
Hess fell 2.1 percent to $69.11 at the close in New York. The shares have gained 30 percent this year, the fourth-best performance among the 43 companies on the Standard and Poor’s 500 Energy Index.
The agreement with Hess resolves the latest in a series of shareholder challenges to energy-company leadership. Investors in Transocean Ltd. (RIG:US) will vote tomorrow on whether to support the company’s board or nominees from billionaire investor Carl Icahn, who is seeking to boost the dividend at the largest offshore oil rig contractor.
Occidental Petroleum Corp. (OXY:US) Chairman Ray Irani, an executive at the oil company for almost three decades, was forced to step down May 3 after investors voted against him. SandRidge Energy Inc. (SD:US) agreed in March to make changes to its board after criticism from shareholder TPG-Axon Capital Management LP. Chesapeake Energy Corp. (CHK:US) co-founder Aubrey McClendon was stripped of his chairmanship before stepping down as CEO last month.
Of Elliott’s five original nominees, Rodney Chase, Harvey Golub and David McManus joined the board. Chase is a former deputy CEO for BP Plc (BP/), Golub ran American Express Co. (AXP:US) from 1993 to 2001 and served for 11 months as chairman of American International Group Inc. McManus was head of international operations for Pioneer Natural Resources Co. (PXD:US)
“For somebody who has very little stake in the company to be allowed three of 14 seats, they got themselves a huge bargain,” said Fadel Gheit, a New York-based analyst for Oppenheimer & Co. who rates Hess the equivalent of a buy and doesn’t own the shares. “It’s good for shareholders, because the last thing that John Hess and the shareholders need is a proxy fight.”
Also joining the board were Hess’s five previously announced nominees, including Willams and John Krenicki, a former executive with General Electric Co. (GE:US) Krenicki, identified by the company May 10 as willing to serve as chairman, called Williams “the perfect choice,” in a statement.
Six board members are departing: Nicholas Brady, Gregory Hill, Thomas Kean, Samuel Nunn, Frank Olson and F. Borden Walker.
The new board members may seek to improve operations in the Bakken Shale of North Dakota, the company’s “best asset,” Simko said. Hess is the largest holder of Bakken acreage behind Continental Resources Inc. (CLR:US), according to data compiled by Bloomberg. The company spends more per barrel to extract oil in the Bakken than Continental, Simko said.
Hess made several moves to mollify Elliott before striking the agreement announced today. The company offered to add two Elliott nominees on May 13. In March, it expanded the assets it planned to sell, proposed the new board members and said it would buy back $4 billion in shares.
Hess said last week that it heard from shareholders who wanted more accountability, increased board oversight and better corporate governance. Elliott had criticized the board for its lack of operating experience in the oil and natural gas industry and for its close ties to the Hess family.
“We understand our shareholders’ views, and recognize that our corporate governance structure should have been improved sooner,” John Mullin III, Hess’s lead independent director, said in the May 10 company statement.
John Hess, 59, has been chairman and CEO of the company since his father retired in 1995. Leon Hess, a former owner of the New York Jets football team, formed the company in 1933 to deliver oil to residential customers near his home in Asbury Park, New Jersey, according to Hess’s website.
“I’m glad it’s over,” John Hess told reporters after the meeting. “All our shareholders wanted us to try and find common ground.”
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