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ISS backs hedge fund's nominees to Hess board

By Michael Erman

(Reuters) - Influential proxy advisory firm ISS recommended that Hess Corp shareholders elect five new board members nominated by activist hedge fund Elliott Management, arguing that those nominees are best qualified to effect a turnaround at the oil and gas company.

The recommendation by Institutional Shareholder Services hurts Hess' defense of its own slate of directors as some institutional shareholders automatically vote as ISS suggests. Shareholders will vote on the board nominees at the company's May 16 annual meeting.

The ISS report, released late on Thursday, came a day after another proxy advisory firm, Glass Lewis, took a similar position. A third advisory firm, Egan Jones, has backed Hess' nominees.

Elliott Management, which owns a 4.5 percent stake in Hess, has been clamoring for change at the company since January, when it launched its campaign to seat the new directors and pitched a plan to break up the company. The hedge fund has railed against the current board, alleging that directors are too closely tied to Hess Chief Executive John Hess and that poor oversight has led to underperformance.

Hess has since announced plans to exit its retail gasoline, marketing and trading businesses and had assembled its own slate of new directors for its board. But it failed to pacify the activist investor.

Hess also raised its dividend and initiated a $4 billion share buyback in March in an effort to boost shareholder returns.

ISS wrote in a report: "As the dissident nominees appear to have more relevant, robust experience — particularly boardroom experience — than the management nominees, but also do not owe their nominations to the incumbent CEO and directors, shareholder support for the dissident slate is warranted."

Hess urged shareholders to ignore the ISS recommendation and back its slate of directors.

"It is troubling that ISS would suggest that shareholders support dissident candidates who are beholden to a new, 4 percent shareholder that has offered no constructive ideas for change at Hess," the company said in a statement, adding that ISS has a bias toward dissident slates.

Hess said its strategy to become a pure-play exploration and production company has been embraced by shareholders and independent Wall Street analysts and its nominees are better positioned to execute on that plan.

Hess shares were up 1.6 percent at $73.40 in midday trading on the New York Stock Exchange.

(Reporting by Michael Erman in New York and Swetha Gopinath in Bangalore; Editing by Sreejiraj Eluvangal and John Wallace)

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