Hess Urging Shareholders to Reject Elliott's Board Nominees, 'Flawed Agenda'

Second-largest investor paying board nominees, with option for additional compensation

Greg Lindenberg, Editor, CSP

John Hess

NEW YORK -- Hess Corp. has sent a letter to its shareholders along with proxy materials filed for its annual shareholders meeting on May 16, 2013, recommending that they reject Elliott Management Corp.'s slate of five board of director nominees that it has put up in opposition to Hess's own slate of nominees.

"Over the past several years, we have undertaken a series of initiatives to streamline our portfolio and transform Hess into a more focused, pure-play exploration and production (E&P) company," chairman and CEO John Hess said in the letter.

"Despite the strong endorsement our plan has received from independent Wall Street analysts and our shareholders alike, Elliott Management--an activist hedge fund run by Paul Singer that only recently began accumulating Hess stock--is asking you to elect a slate of dissident directors who have already compromised their independence by agreeing to be paid directly by Elliott to support the hedge fund's short-term agenda. Under this highly unusual scheme, Elliott would control its directors by potentially paying them millions in cash to effectively dismantle Hess and all but foreclose the prospect of future value creation," he said.

Under an agreement with its slate, Elliott will 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.

Elliott 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 will be eligible for another $20,000 for each 1% of outperformance.

"The board of directors does not endorse any Elliott nominees and unanimously recommends that you vote for the election of each of the nominees proposed by the board of directors and against the Elliott proposal," Hess's letter added. "By supporting the Hess director nominees and signing and dating the white proxy card, you can ensure that you have independent directors on the board committed to looking out for the interests of all Hess shareholders, not just a single shareholder with a flawed agenda."

Earlier this year, Elliott Management--the second-largest Hess shareholder--filed a document with the SEC that laid out its position:

  • "We believe the intrinsic value of Hess could be worth over $126 per share" (it is currently trading at about $70 per share).
  • "We attribute the market's substantial discount to Hess's unfocused portfolio and poor management."
  • "We believe the board's lack of independence and relevant experience results in governance failure."

Elliott Management said it is seeking to:

  • "Elect to the board five independent, highly qualified executives with significant, relevant experience to review all strategic options."
  • "Conduct a full strategic and operational review to consider all pathways to maximize value-- including: Carry out substantial restructuring program (including spinoff of Bakken asset) to refocus portfolio and management; improve operations and accountability to halt history of poor execution (Bakken cost overruns, failed JVs, etc.); bring discipline to capital allocation to stop runaway capex budgets and exploration failures."

Elliott Management has said it is not trying to liquidate Hess, and that the oil company is using "scare tactics" to convince shareholders to support its proposed slate of directors.