By Shankar Ramakrishnan
NEW YORK, Jan 29 (IFR) - Elliott Management Corp senior portfolio manager John Pike on Tuesday said his hedge fund has won support from large shareholders of oil and gas company Hess for its proposal to break up the company to enhance shareholder returns.
Elliott, which holds 4% of Hess, released a detailed proposal earlier on Tuesday that said it believed Hess was undervalued due to the company’s “unfocused portfolio and poor management.”
“The undervalued stock is a result of a failure of corporate governance,” said Pike. “The board’s lack of independence and relevant experience in the oil and gas sector has resulted in governance failure.”
Elliott believes Hess could be worth more than US$126 per share. The stock closed at US$68.11 on Tuesday after soaring 9% on the day following the release of Elliot’s proposal.
“There is immense value in the company’s assets and in our pursuit to unlock this value, we are pushing for a split-up to refocus the business and the appointment of five executives to the board. Seeing the caliber of the individuals we are suggesting is in itself attracting support from other large shareholders,” said Pike.
Elliott received a number of phone calls on Tuesday supporting its proposal and “we clearly have found support from the market and other shareholders,” he said.
Elliott has nominated Rodney Chase, former deputy group chief executive of BP, Harvey Golub, former chairman & CEO of American Express and Karl Kurz, former COO of Anadarko Petroleum among the five board members it would like to see on the Hess board.
The hedge fund also recommended refocusing Hess’ portfolio by spinning off the Bakken oil shale in North Dakota, improving operational focus and instilling capital discipline.
Elliott argued that Hess is incapable of managing resource plays and offshore assets and that was causing severe cost overruns in the Bakken.
As Hess shares soared, bond spreads widened sharply.
Hess 5.6% 2041s were trading at Treasuries plus 207 basis points, or 38bp wider on the day. The company’s 6% 2040s were trading 43bp wider at Treasuries plus 214bp. Five-year credit default swaps widened by 22bp, or 14.5%, to 167.5bp-182.5bp.
The letter from Elliott came a day after Hess announced that it would sell its network of oil-storage terminals and its refinery business and become predominantly an exploration- and production-based business.
ConocoPhillips, Marathon Oil and Murphy Oil have all recently split off their refining operations to create additional value.
Hess said Elliott has told the company it intends to file for regulatory clearance to acquire additional Hess shares beyond those they already own.