Hess Investor D.E. Shaw to Abstain From Vote on $53B Chevron Deal

Key Takeaway

• Chevron's $53 billion acquisition of Hess faces mixed recommendations from proxy advisory firms, with Glass Lewis supporting and ISS advising against it.
• D.E. Shaw, a major Hess shareholder, plans to abstain from voting due to concerns over Exxon's arbitration claim on the Guyana oil project.
• Chevron's strategic divestment of its 19.4% stake in the UK's Clair oilfield aligns with its $15 billion asset sale strategy for future growth.

Proxy Advisory Firms Split on Chevron-Hess Deal

Chevron Corp.'s proposed $53 billion acquisition of Hess Corp. has elicited mixed reactions from proxy advisory firms, underscoring the deal's complexity and potential risks. Glass Lewis & Co. has recommended that Hess shareholders vote in favor of the merger, emphasizing the opportunity for shareholders to benefit from the future upside of the combined entity through newly issued Chevron shares. They described the merger's merits as "sound and reasonable," despite acknowledging some less than ideal aspects of the deal.

Conversely, Institutional Shareholder Services Inc. (ISS) advised Hess shareholders to withhold their votes, citing concerns about the transaction's valuation and the uncertainty surrounding the arbitration case between Exxon Mobil Corp. and Chevron over a stake in a Guyanese oil project. This divergence in recommendations from leading proxy advisory firms has introduced uncertainty into what would be Chevron's largest deal in decades.

Strategic Implications and Arbitration Uncertainty

The acquisition is strategically significant for Chevron, aiming to secure Hess's 30% stake in a major oil field off Guyana, considered the world's largest and most profitable crude discovery in the past decade. However, the deal is complicated by Exxon's arbitration claim, filed in March, asserting a right of first refusal over Hess's stake in the Guyana project. This legal challenge has cast a shadow over the merger, with the outcome of the arbitration likely to influence the deal's final terms and timeline.

D.E. Shaw & Co., one of the top 15 shareholders in Hess, plans to abstain from voting on the deal, becoming the second major investor this week to oppose the transaction. "We intend to follow the ISS recommendation to abstain from voting on the Hess acquisition by Chevron, and to support the motion to adjourn the vote," said Jason Singer, managing director at D.E. Shaw. He added, "The transaction, as currently structured, doesn’t contemplate the time it takes to arbitrate with Exxon. As long-term holders, we believe Hess is a high-quality company with attractive assets and a bright future."

Divestment and Acquisition Strategy

As part of its broader strategy and in preparation for the acquisition, Chevron has announced the sale of its 19.4% stake in the UK's Clair oilfield, marking its exit from the North Sea after 55 years. This divestment is part of a $15 billion asset sale strategy aimed at reallocating resources towards more competitive and strategic assets. The proceeds from the North Sea asset sale are expected to fund high-return projects, aligning with Chevron's focus on optimizing its portfolio for future growth and sustainability.

Chevron shares rose 0.4% on Friday, while Hess climbed 0.5%. The transaction still needs approval from the US Federal Trade Commission and must navigate the arbitration with Exxon, which is likely to last through at least the end of this year. The conflicting recommendations from proxy advisory firms and the ongoing arbitration have created uncertainty over the outcome of the deal.

Street Views

• Jason Singer, D.E. Shaw & Co. (Neutral on Hess Corp. and Chevron):

  "We intend to follow the ISS recommendation to abstain from voting on the Hess acquisition by Chevron, and to support the motion to adjourn the vote... The transaction, as currently structured, doesn’t contemplate the time it takes to arbitrate with Exxon. As long-term holders, we believe Hess is a high-quality company with attractive assets and a bright future."