May 16, 2013 2:15 pm

Hess strikes 11th-hour boardroom deal

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Hess, the US oil group, agreed a compromise over board seats with dissident shareholder Elliott Management just hours before an investor vote at its annual meeting.

Under the deal, negotiated overnight, Hess added five new independent directors previously nominated by its board, and three from a slate of five put forward by Elliott.

The board also elected a new chairman – Mark Williams, a former head of marketing and refining for Royal Dutch Shell, who was one of the Hess nominees.

The agreement resolves one of the most fiercely contested battles for corporate control in the US energy industry, where there has been a rising tide of investor activism in the past year.

The board changes are likely to keep Hess on the strategic path it promised in March, including higher dividends, share buybacks, and disposals of its marketing and distribution operations and some overseas assets.

Hess shares fell 2.11 per cent to $69.11 by the close of trading.

However, Quentin Koffey of Elliott, which holds 4.5 per cent of Hess, said the agreement was an “excellent outcome” for investors. “Hess has terrific assets; it just needed good stewardship,” he said.

In total, nine members of Hess’s 14-strong board will be replaced, including one director who joined in March. The change follows a long period of stasis: before Thursday, no independent directors had left the board for more than 10 years.

The five Hess nominees, including Mr Williams and John Krenicki, the former chief executive of General Electric’s energy business, were elected to the board by a shareholder vote at Hess’s annual meeting in Houston on Thursday morning.

The three Elliott nominees appointed as directors are Rodney Chase, a former deputy chief executive of BP, Harvey Golub, a former chief executive of American Express, and David McManus, a former senior executive at Pioneer Natural Resources and BG Group.

Shareholders also voted, as recommended by the company, to give up the “staggered” board, which limited the number of directors that could be changed each year.

Hess had proposed Mr Krenicki as a possible chairman, but he would have taken the job only if none of the Elliott nominees had joined the board.

Mr Williams replaces John Hess, son of the group’s founder Leon Hess, who is giving up the chairmanship but will remain as chief executive.

Elliott said that in preliminary results, more than 60 per cent of the votes not cast by Hess family interests, which control about 10.6 per cent of the shares, had been in favour of its nominees. Its candidates had been backed by Glass Lewis and Institutional Shareholder Services, the investor advisory firms, as having the greatest relevant experience.

However, Elliott said it had agreed to the compromise as a way to bring more new directors on to the board. Mr Koffey said: “This has been a radical reconstruction of the board in an incredibly short time.”

Investors and the advisory services had expressed support for a compromise that would bring both Elliott’s and Hess’s nominees on to the board.

Under pressure from Elliott, Hess has already made several concessions, including committing to disposing of fields in Indonesia and Thailand, and all of its downstream marketing and distribution businesses.

It plans to focus on oil and gas production in a few areas, including the Bakken shale of North Dakota, and the deep water of the Gulf of Mexico, Ghana and Malaysia.

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