Equities

ISS to Hess: Abstain on $53B Chevron Deal Amid Concerns

ISS recommends Hess shareholders abstain from Chevron's $53 billion bid amid arbitration and Schumer opposes merger over price concerns.

By Mackenzie Crow

5/13, 14:18 EDT
Chevron Corporation
Hess Corporation
Exxon Mobil Corporation
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Key Takeaway

  • ISS advises Hess investors to abstain from voting on Chevron's $53 billion takeover due to valuation and arbitration concerns.
  • Schumer opposes the merger, citing potential gas price increases, urging FTC reevaluation for consumer protection.
  • The deal faces regulatory scrutiny under the HSR Act, reflecting broader concerns over market competition and consumer pricing.

ISS Advises Caution on Chevron-Hess Deal

Institutional Shareholder Services Inc. (ISS), a leading proxy advisory firm, has recommended that Hess Corp. investors abstain from voting on the proposed $53 billion acquisition by Chevron Corp. due to concerns over the deal's valuation, negotiation process, and the uncertainty surrounding its timeline. This recommendation comes amid an ongoing arbitration case between Exxon Mobil Corp. and Chevron regarding Hess' stake in a Guyanese oil project. ISS suggests that shareholders vote in favor of an adjournment proposal, allowing more time for the arbitration outcome, which could significantly impact the deal's viability. Following the release of ISS's report, Chevron's stock declined by up to 1.7%, while Hess experienced a 0.8% drop.

Schumer's Stance on the Merger

Senate Majority Leader Chuck Schumer has voiced his opposition to the Chevron-Hess merger, emphasizing the potential for the deal to enable further increases in gas prices. Schumer's concerns reflect a broader apprehension about the consolidation of power within the oil industry and its implications for consumers. He has called on the Federal Trade Commission (FTC) to reevaluate the merger, highlighting the need for regulatory bodies to prioritize consumer interests over corporate consolidation. Schumer's critique is part of his ongoing advocacy against large oil mergers, which he believes could lead to higher consumer prices.

Financial and Regulatory Implications

The merger, announced in October, is valued at $53 billion, or $171 per share, representing a 10.3% premium based on the 20-day average of closing prices as of October 20, 2023. Including debt, the total enterprise value of the deal reaches approximately $60 billion. The FTC's request for additional information from Chevron and Hess indicates a thorough review process, extending the waiting period under the Hart-Scott-Rodino (HSR) Act. This regulatory scrutiny reflects concerns over market competition and pricing, with Schumer and 22 other Democratic senators advocating for a closer examination of the merger's impact on consumer prices.

Market Reaction and Outlook

The market's reaction to the merger announcement and subsequent developments has been mixed, with Chevron and Hess experiencing fluctuations in their stock prices. Both companies, however, reported earnings surprises for the first quarter of 2024, surpassing analysts' expectations and underscoring their strong market positions. The outcome of the merger, subject to shareholder votes and regulatory approval, remains a focal point for investors, industry stakeholders, and consumer advocates alike.

Street Views

  • Institutional Shareholder Services Inc. (Neutral on Hess and Chevron acquisition):

    "ISS cited concerns about the deal’s valuation, process and uncertainty around its timeline given the ongoing arbitration case between Exxon Mobil Corp. and Chevron over Hess’ stake in a Guyanese oil project... Hess’ decision to pursue exclusive negotiations with Chevron is difficult to overlook due to the 'modest' implied premium of the transaction."