Proxy Firm: Hess Investors Should Abstain on Chevron Vote
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Chevron Corp.’s $53 billion deal to acquire Hess Corp. suffered a blow May 13 when a leading shareholder adviser urged investors to abstain from voting for the deal.
Institutional Shareholder Services cited concerns about the transaction’s valuation, process and uncertainty around the timeline of the arbitration case between Exxon Mobil Corp. and Chevron over Hess’ stake in a Guyanese oil project. Shareholders should vote in favor of an adjournment proposal to allow “more time” for arbitration to play out, the firm said.
Meanwhile, HBK Capital Management, one of Hess’ biggest investors with economic interests in 8 million shares, said it agrees with ISS and will be abstaining when votes are cast May 28.
Chevron declined as much as 1.7% after the report’s release and traded down 1.5% at $164.34 as of 3:42 p.m. in New York. Hess was down 0.5%.
ISS’ recommendation is yet another blow to what would be Chevron’s biggest deal in two decades and a career capstone for John Hess, the septuagenarian chief executive who’s in line for a seat on the supermajor’s board upon completion.
The transaction still needs a greenlight from the U.S. Federal Trade Commission and must work through arbitration with Exxon that’s likely to drag on through at least the end of this year.
Stabroek Block
Exxon has expressed confidence that it has a right of first refusal over Hess’ 30% share of the Stabroek Block in Guyana, where the Texas oil giant is the operator and holds a 45% stake. Chevron and Hess argue this right doesn’t apply in the case of a corporate merger. But investors are ultimately in the dark over the issue because the contract is private, ISS said.
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Chevron and Hess “determined not to promptly inform shareholders” of the right of first refusal risk “for months after the deal announcement,” ISS said. “Given this delay, investors may reasonably wonder whether the companies purposefully withheld this information.”
Hess didn’t immediately reply to a request for comment. Bill Turenne, a Chevron spokesman, said: “We look forward to Hess obtaining a successful shareholder vote and completing the transaction.”
ISS said Hess shareholders “are presently unable to make an informed assessment of the likely timetable” for the arbitration case and “bear the risk of a potentially broken deal without any compensation.” If Exxon prevails, Chevron could walk away from the deal without paying a termination fee, ISS said.
Exclusive Talks
HBK, which has more than $7 billion of assets, said shareholders should be compensated for the risk of Chevron-Hess losing the arbitration case or if it takes longer than expected.
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While the logic of Hess merging with a larger company is “apparent,” the decision to negotiate exclusively with Chevron “could lead shareholders to question whether the CEO’s personal incentives played a role in the merger,” ISS said.
The decision to pursue exclusive negotiations with Chevron “may ultimately be defensible, but it is a bit more difficult to overlook the modest implied premium of the transaction,” ISS said.
