UPDATE 2-Hess offers hedge fund two board seats but is rejected
May 13 (Reuters) - Hess Corp offered hedge fund Elliott Management two seats on its board on Monday, but the activist investor rejected the proposal, calling it a "PR stunt."
The oil and gas company is scrambling to avoid an embarrassing defeat to Elliott at its annual meeting on Thursday. Elliott, which owns a 4.5 percent stake in Hess, is running a slate of five directors against Hess' nominees.
They have both been lobbying hard for shareholders to back their respective slates. Hess agreed to strip longtime chief executive John Hess of his chairmanship last week in a bid to show improving corporate governance at the company.
Hess said in a statement that it is prepared to add two of the Elliott nominees, chosen in consultation with shareholders, if all of the company nominees are elected.
Elliott blasted the move, and said that Hess should accept all five of its nominees.
"Without ever talking with Elliott and seeing the writing on the wall, Hess engaged in a PR stunt and proposed accepting only two nominees," Elliott said in a statement.
The hedge fund claimed that Hess has avoided engaging in substantive conversation.
According to sources familiar with the matter, John Hess and Elliott founder Paul Singer exchanged phone calls on Monday evening, but no substantive settlement talks have taken place.
Elliott has been clamoring for change since January, when it launched a campaign to seat the new directors and pitched a plan to break up the company. The hedge fund has railed against the current board, alleging that directors are too closely tied to John Hess and that poor oversight has led to underperformance.
As Hess has mounted its defense against Elliott's arguments, the company has announced plans to exit its retail gasoline, marketing and trading businesses, in order to transform it into a pure play exploration and production company. It has also assembled its own slate of five new independent directors for the board.
Elliott said that beyond seating its five nominees, it believes Hess should replace as many of their incumbent directors with their new, independent nominees as is reasonable.
Earlier on Monday, Elliott's board nominees waived their right to receive a controversial pay package under which the hedge fund would have paid them extra if the oil and gas company outperformed its peers under their watch.
Hess had argued that the pay, which would not be available to the company's other directors, compromised the nominees' independence.
Hess's shares have gained 18 percent since disclosing that Elliott had taken a stake in the company in January. They closed up 9 cents at $69.39 on the New York Stock Exchange on Monday.