NEW YORK -- Elliott Management Corp.'s five independent shareholder nominees for the board of Hess Corp. on Monday addressed the "ongoing distraction" concerning compensation arrangements. On Monday, they issued a letter to all Hess shareholders in advance of Hess's 2013 shareholders meeting on May 16, 2013, saying that they have all decided to waive compensation should they be elected to the board.
Elliott Management, a major investor in Hess, 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.
Since then, Hess and Elliott Management have issued a series of contentious letters and reports critical of each other's board nominees and strategies for Hess. Elliott Management has accused Hess of mismanagement, and Hess has blasted Elliott Management's compensation plan. Late last week, in response to shareholders, Hess announced that it would split its chairman and CEO positions, said it intends to appoint John Krenicki, former vice chairman of GE, as nonexecutive chairman.
Under an agreement with its slate, Elliott Management would make a one-time $50,000 cash payment to each candidate nominated to the Hess board, according to a Bloomberg report citing a March 20 filing with the U.S. Securities & Exchange Commission (SEC). The New York City-based hedge fund would make additional payments if Hess outperforms peers for three years, according to the document. It would pay the nominees bonuses of $10,000 for each 1% that Hess shares exceed the average total return of peers in the first three years, if any of the candidates makes it onto the board. Members who are appointed or elected to the board would be eligible for another $20,000 for each 1% of outperformance.
Elliott Management's latest letter reads, in full:
Dear Shareholder,
Over the past months we have had the opportunity to meet and speak with many of you and to hear your thoughts and concerns about Hess. Today we stand ready--each with our own viewpoints, but with a unity of purpose--to begin the task of revitalizing the company.
Like you, each of us shares a belief in the tremendous unrealized potential of Hess. Despite a premier collection of assets, the company has failed to convert these advantages into real returns for Shareholders. Each of us believes that these problems can be overcome under the leadership of an experienced, independent board of directors, and we welcome the opportunity, if elected, to work side by side with the rest of the board and management to ensure the accomplishment of this goal.
Recently, we were gratified to have each of the two leading proxy advisory firms, ISS and Glass Lewis, issue their recommendations that shareholders elect our entire slate of board nominees. This overwhelming--and, as we understand it, rare--endorsement of an entire dissident slate from the two premier, independent proxy advisory firms echoes Shareholders' realization of the compelling need for change at Hess.
While we have been encouraged by the enthusiastic public response to this campaign, we have also noted the ongoing distraction around our compensation arrangements with Elliott Management. As such, while each of us believes that these arrangements are appropriate and consistent with the performance of our duties as independent directors, each of us has made the decision to waive our right to receive these payments from Elliott. This binding waiver is reflected in amendments to our agreements with Elliott, a form of which will be made publicly available.
The vote on May 16 will bring an end to this campaign, but the true work will have just begun. Each of us is committed, if elected to the board, to working with the entire Board and Management to deliver the outstanding returns of which Hess is capable. We're eager to get started.
We hope you will give us your support, and send a strong message for real change and accountability, by casting your vote [for Elliott Management's board candidates].
Very truly yours,
Rodney Chase, Harvey Golub, Karl Kurz, David McManus, Marshall Smith
In response to Elliott Management's letter, John Mullin, Hess's lead director, said in a press statement that "Elliott's nominees finally have acknowledged that their short-term, conflicted compensation agreement was wrong."
He said, "As we have said all along, Elliott's directors compromised their independence and judgment by agreeing to accept Elliott's compensation scheme. This follows the Elliott nominees' recent move to back away from the flawed breakup plan for Hess that they had originally agreed to support--and they backed away only after hearing the overwhelming rejection of that plan by Wall Street research analysts and Hess shareholders."
He added, "The admission today by Elliott and its nominees makes it clear that shareholders agree that Elliott's scheme was unacceptable, and exposed Elliott's campaign for what it is, 'shorttermism' at the expense of all shareholders. It is also clear that shareholders, in pushing Elliott's nominees to drop the scheme, have rejected the tortured logic from ISS recommending for Elliott."
Hess has set up a website, Transforming Hess, to provide information on the initiatives. Elliott Management has also set up a website, Reassess Hess.
New York City-based Hess is a leading global independent energy company primarily engaged in the exploration and production of crude oil and natural gas and the marketing of refined petroleum products, natural gas and electricity. Hess is a major independent gasoline-convenience store retailers on the East Coast with more than 1,350 retail outlets in 16 East Coast states.
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