Next Round for Hess vs. Elliott
Letters tell different stories to shareholders ahead of vote; fate of company hangs in balance
NEW YORK -- The conflict between Hess Corp. and major investor Elliott Management Corp. to choose its board--and to determine the direction and fate of the company--continued this week. Hess has sent a second letter to shareholders in connection with its May 16, 2013, annual meeting. Meanwhile, Elliott Management has filed and mailed its proxy circular to Hess shareholders.
Elliott Management, which owns a more than 4% stake--has been calling for change at Hess since January, when it launched a campaign to seat five new directors on the board and pitched a plan to reevaluate the company's strategy and possibly break up the company. Hess has since announced plans to exit its retail gasoline, marketing and trading businesses, and assembled its own slate of six new directors for its board.
New York City-based Hess's letter recommends that shareholders vote for the election of its "highly qualified independent nominees."
It said, "In contrast, Paul Singer's hedge fund Elliott Management recently acquired shares in Hess and is seeking to elect five of its own directors to your board without even making the effort to meet with us to learn about Hess. The Elliott directors are being compensated directly by Elliott through an unusual contingent payment scheme that incentivizes them to support a short term break-up plan that will effectively liquidate Hess.
"The Elliott plan, which has been roundly criticized by Wall Street analysts, would all but foreclose any opportunity for Hess to realize its true long-term value as a pure play E&P company. Elliott's nominees have signed on to this flawed plan and even agreed to accept short-term incentives from Elliott--even if it means sacrificing long-term value that rightly belongs to you."
The letter added, "We are making significant progress against our carefully vetted transformation plan."
"Reject John Hess’s last minute attempts to avoid accountability to shareholders," Elliott Management's letter supporting its nominees said.
"We believe the record clearly demonstrates the history of a CEO focused more on maintaining a family dynasty than instilling accountability and addressing chronic underperformance," it said."Hess has underperformed by an astonishing (460)% under the current CEO's tenure and nearly (50)% over the last two years. Hess has been in a state of perpetual ineffective restructuring for 17 years. Yet, Hess has paid Management and the Board $540 million under the CEO's tenure and has earned John Hess a place on the Forbes 25 highest paid CEOs list three of the last five. years. All the while, John Hess's family estate has paid $8 million directly to board members, including $3 million to lead independent directors."
The letter also said, "We believe the market severely undervalues Hess because it expects failure to continue. ... Since announcement of Elliott's intent to nominate, Hess has outperformed peers by 23%."