UPDATE 4-Hess seats 3 activist-backed directors, ends proxy fight
* Elliott supports Hess' five board nominees
* Elliott had earlier proposed a slate of five directors
* Three more incumbent Hess directors stepping down
* Board elects Mark Williams as chairman
NEW YORK/HOUSTON, May 16 (Reuters) - Hess Corp placed three directors backed by hedge fund Elliott Management on its board on Thursday, settling a months-long feud over the oil company's governance and long-term strategy.
The agreement came hours before shareholders were set to vote on competing slates of directors at the Hess annual meeting.
Since Elliott started making its case for change in January, Hess has announced plans to become a pure play exploration and production (E&P) company by selling or exiting a number of businesses and stripping longtime chief executive John Hess of his role as chairman.
The board elected former Royal Dutch Shell Plc executive Mark Williams as chairman, passing over Hess' preferred candidate.
In exchange for the three board seats, Elliott supported the election of five independent directors nominated by Hess.
Hess' new board will continue to have 14 directors, Hess and Elliott said in a joint statement on Thursday. Three incumbent directors stepped down in order to make room for the Elliott directors, Hess said.
"We believe this is in the best interests of Hess," John Hess said, speaking at the company's annual meeting in Houston. "Hess' future has never been brighter."
The chief executive said that new directors do not presage a change in the company's latest growth plan announced in March, which focuses Hess on its E&P operations.
"It was pretty much universally accepted. We'll continue on that execution," John Hess said.
Hess shares rose nearly 20 percent from the time Elliott's stake was announced in January through Wednesday's close. They were down 2.4 percent at $68.91 on Thursday afternoon on the New York Stock Exchange.
Elliott, which owns a 4.5 percent stake in Hess, 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 railed against the incumbent board, alleging that directors were too closely tied to Chairman and CEO John Hess and that poor oversight had led to underperformance.
Hess Corp has since announced plans to sell or exit its retail gasoline, marketing and trading businesses. It has also agreed to separate the chairman and chief executive roles and de-stagger its board.
Directors Samuel Bodman, Craig Matthews, and Ernst von Metzsch are stepping down for the Elliott-nominated directors, bringing the number of incumbent directors who have left Hess' board this year to nine.
"This is a very qualified, deeply experienced, highly independent board. There is going to be a new era of oversight and accountability and we think that's going to portend great returns for shareholders," Elliott senior portfolio manager John Pike said in an interview.
Elliott nominees Rodney Chase, Harvey Golub and David McManus will join Hess' board. That is in addition to the five Hess nominees: Williams, John Krenicki, Fredric Reynolds, William Schrader and Kevin Meyers.
Hess said last week that if its nominees were elected to the board, former General Electric Co vice chairman Krenicki would become chairman of the company. But the board turned to Williams instead.
Two of the three Elliott directors will be appointed to a five-member nominating and corporate governance committee, and the third will join the company's compensation committee.
"The independence of the board is a plus," said Argus Research analyst Phil Weiss. "Hess still has relatively high family ownership for a company of its size. With an independent director and other changes to the board, the role is somewhat diminished as there are more checks and balances in place."
On Tuesday, in an attempt to settle the proxy contest, Elliott Management proposed that all of its nominees and all Hess Corp nominees be part of a new board. A day earlier, the fund rejected Hess' offer of two board seats.
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