NEW YORK -- Investment firm Elliott Management Corp. and its founder and principal, "activist investor" Paul Singer, are advocating that Hess Corp. conduct a full strategic and operational review to consider ways to maximize shareholder value that could include implementing a substantial divestment program to exit the retail business, among other businesses.
Hess announced on Jan. 28 that it will pursue the sale of its terminal network and will complete its exit from the refining business by closing its Port Reading, N.J., refinery. But it emphasized that it will continue its long-term commitment to the Retail and Energy Marketing businesses.
As reported in a Raymond James/CSP Daily News Flash, in a letter from Elliott Management urging Hess shareholders to elect a specific slate of independent directors to the board, the firm--affiliates of which own 4% of the common stock of Hess, the largest in its 35-year history, and second only to chairman and CEO John Hess--said:
"Hess Corp. capital is tied up in a multitude of businesses it should exit: hedge funds, electric generation, retail and marketing, distribution, refining and others. In addition, Hess has poured over $1 billion of shareholder capital into midstream assets around its Bakken acreage when there are numerous lower cost of capital alternatives that would allow Hess to maintain strategic control.
"By divesting out of downstream and tax efficiently monetizing midstream assets through MLP [master limited partnership] or REIT [Real-estate investment trust] structures, Hess Corp. could release up to $5.5 billion of capital that could be returned to shareholders. We estimate that carrying out such transactions would create over $11 per share of additional value for shareholders--over a 20% impact on the stock price. In addition, we believe the market would give Hess a higher overall multiple as confidence was gained that management was credibly focusing on its most valuable assets and removing distractions."
If it goes the MLP route, Hess would join industry companies including Susser, Lehigh Gas Partners, Northern Tier, Global Partners, Marathon Petroleum, Alon USA, Murphy Oil, Valero, ConocoPhillips and Sunoco in participating in the MLP tend in some form.
(Click here or see Related Content below for previous CSP Daily News and CSP magazine coverage of MLPs.)
The firm said in the letter that it is "convinced that tremendous value is trapped inside [Hess] as a result of poor oversight by a board of directors lacking both the experience and independence to set a clear, shareholder-focused, value-creating strategy. ... There are real problems at Hess, and we believe they stem from a lack of focus and strategy. While over 90% of Hess’s value derives from its E&P [Exploration & Production] operations, the company maintains a laundry list of downstream (and out of any stream) distractions. ... Lack of focus leads to poor capital allocation decisions and poor execution. Hess abounds with examples of both."
New York City-based Elliott Management has set up the "Reassess Hess" website with a presentation, the full text of the letter and other information on its position.
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 one of the larger independent gasoline-convenience retailers on the East Coast with more than 1,350 stations and c-stores in 18 states including 290 Hess-branded locations in Florida.
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