Talking point: Chevron CEO Mike Wirth and Hess (left) in an interview on the American TV news channel CNBC on the floor of the New York Stock Exchange. They discussed Chevron’s deal to buy Hess Corp for US$53bil. — Reuters
HOUSTON: Chevron Corp’s US$53bil deal to acquire Hess Corp suffered a potential blow on Monday as an influential adviser said investors should abstain from voting for the deal.
Proxy adviser Institutional Shareholder Services Inc (ISS) said Hess shareholders should withhold their votes, citing concerns about the transaction’s valuation, process and uncertainty around the timeline of the arbitration case between Exxon Mobil Corp and Chevron over a stake in a Guyanese oil project.
Hess shareholders should vote in favour of an adjournment proposal to allow “more time” for arbitration to play out, ISS said.
Meanwhile, HBK Capital Management, one of Hess’ biggest investors with economic interests in eight million shares, said it agrees with ISS and will be abstaining when votes are cast on May 28.
The moves pose a challenge to what would be Chevron’s biggest deal in two decades and a career capstone for John Hess, the septuagenarian chief executive who’s in line for a seat on the supermajor’s board upon completion.
The transaction still needs a green light from the US Federal Trade Commission and must work through arbitration with Exxon that’s likely to drag on through at least the end of this year.
Exxon has expressed confidence that it has a right of first refusal over Hess’s 30% share of the Stabroek Block in Guyana, one of the world’s fastest-growing major oil developments. Exxon operates the project and holds a 45% stake.
Chevron and Hess argue this right doesn’t apply in the case of a corporate merger. But investors are ultimately in the dark over the issue because the contract is private, ISS said.
Chevron and Hess “determined not to promptly inform shareholders” of the right of first refusal risk “for months after the deal announcement”, ISS said.
“Given this delay investors may reasonably wonder whether the companies purposefully withheld this information.”
Bill Turenne, a Chevron spokesman, said: “We look forward to Hess obtaining a successful shareholder vote and completing the transaction.”
ISS said Hess shareholders “are presently unable to make an informed assessment of the likely timetable” for the arbitration case and “bear the risk of a potentially broken deal without any compensation.”
If Exxon prevails, Chevron could walk away from the deal without paying a termination fee, ISS said.
HBK, which has more than US$7bil of assets, said shareholders should be compensated for the risk of Chevron-Hess losing the arbitration case or if it takes longer than expected.
While the logic of Hess merging with a larger company is “apparent”, the decision to negotiate exclusively with Chevron “could lead shareholders to question whether the chief executive officer’s personal incentives played a role in the merger,” ISS said.
The decision to pursue exclusive negotiations with Chevron “may ultimately be defensible, but it is a bit more difficult to overlook the modest implied premium of the transaction”, ISS said. — Bloomberg
