The fight over control of the board at oil and gas company Hess Corp is an example of the power of activist investors, who have come out swinging this year. Under attack by two activist funds, Hess has been selling assets left and right to win over shareholders. Today, Hess tried to score another point with investors by selling its Russian subsidiary to Lukoil for about $2 billion, bringing the total of assets it has sold this year to about $3 billion.
But the asset sales aren’t likely to appease the activists, who have attacked the company as “incredibly scattered” in an attempt to get their own people on the board. And if there is no settlement, it will be up to shareholders, who are scheduled to vote on board members on April 30, to decide who has a better vision for the future of Hess. Hedge fund Elliott Management has nominated five directors to Hess’s board and has pushed for a break-up of the company. Activist shareholder Relational Investors has also joined the fight in support of Elliott.
Since it came under activist pressure, Hess has worked on becoming more of a pure exploration and production company to boost its stock, although CEO John Hess said that isn’t a response to Elliott. Part of that game plan includes getting out of the marketing and trading businesses, and the retail gasoline unit. Hess has also nominated its own set of board directors.
Oil and gas companies that have diverse business units have been a popular target for activists, who have advocated for spinoffs or breakup at those firms. Activist investor Jana Partners successfully pushed for a spin off at Marathon Petroleum last year. But Jana didn’t have to fight to get its way, and instead had an amicable negotiation with Marathon’s management.
Similarly, Relational has pushed John Hess and others in management to talk with Elliott. But the tone of discussions around Hess has been much more acrimonious than with Marathon. In March, Elliott said Hess has been a “golden meal ticket” (pdf) ticket for executives and the board—not the kind of language that bring differing parties to the negotiating table.
Today’s sale announcement boosted Hess’s stock by more than 3%, causing it to hit a new 52-week high. That shows Hess is making the right moves for shareholders. But it may be too little, too late. If it looks like Hess could lose the vote for its board slate, or the outcome may be close, there will be an incentive for a last minute settlement to avoid an embarrassing result. Until then, the war of words is likely to continue.