Top activist stories 6

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Top Activist Stories - A Review of Financial Activism by Geneva Partners

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Top activist stories 6

  1. 1. TOP AC TIVIST STORIES N°6 A REVIEW OF FINANCIAL ACTIVISM BY GENEVA PARTNERS February 28th,2013 CommonWealth Surges After Activists Challenge Stock Sale CommonWealth REIT surged the most in more than two decades after activist investor Keith Meister and Related Cos. challenged the company’s plan to sell shares and said they’re prepared to make a $2.1 billion bid.[…] SPX Turns Prey as Relational Pushes Asset Sales SPX Corp. (SPW), which ended talks to buy equipment maker Gardner Denver Inc. (GDI) last year, is poised to become a target itself after activist Relational Investors LLC urged it to shed assets and focus on industrial pumps.[…] Moodys: Activists Big-Game Hunting in 13 Activist hedge fund managers are licking their chops this year, according to a new report from Moodys Investor Services. […] Gardner Denver to consider buyout as earnings dim Gardner Denver Inc (GDI.N) prepared for a board meeting to consider a $3.7 billion buyout offer by KKR & Co LP (KKR.N) as its 2013 earnings forecast on Friday came well below analysts expectations on weak demand for its pumps.[…] Agrium and Jana battle to woo investors Just as Canadians were leaving their offices to enjoy the “family day” long weekend this month, Agrium announced a change to its annual meeting plans. The move was a rare public sign of what has become a bitter battle for investor hearts and minds as Agrium and its largest shareholder Jana, the $4.5bn activist hedge fund run by Barry Rosenstein, compete for support. […] Hess Tangled Family Ties Targeted in Shareholder Revolt Hess Corp. (HES)’s shareholder revolt is taking aim at long-time directors with close ties to the company’s founding family, including two executors of the estate of Leon Hess, who led the oil producer for six decades.[…] 1GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – info@geneva-partners.com – www.geneva-partners.com
  2. 2. TOP AC TIVIST STORIES A REVIEW OF FINANCIAL ACTIVISM BY GENEVA PARTNERS February 28th,2013 CommonWealth Surges After Activists Challenge Stock SaleBy David Welch reiterating their position, citing their taxable earnings to shareholders inFebruary 26th, 2013 combined 7.3 percent ownership. the form of dividends. In exchange they pay little or no income tax. CommonWealth Meister, Blau Issuing 27 million additional sharesREIT surged the most in more than will dilute CommonWealth’stwo decades after activist investor Meister and Related outstanding shares by more than 30Keith Meister and Related Cos. CEO Jeff Blau, who signed the letter in percent, according to data compiledchallenged the company’s plan to sell today’s filing, project that by Bloomberg, lowering the dividendsshares and said they’re prepared to CommonWealth’s real estate assets paid to shareholders.make a $2.1 billion bid. are worth about $40 a share, and CommonWealth REIT (CWH) ownedRelated and Meister, a onetime Carl assert that poor management has $7.3 billion of office and industrialIcahn protege who started activist driven down the stock. With better properties as of Dec. 31, with aboutfund Corvex Management LP, said management, the two investors 54 million square feet (5 millionthey see the opportunity to expect CommonWealth shares could square meters) located in 31“meaningfully increase” their $25-a- reach more than $50. Corvex has states, Washington, D.C.,share offer after completing due already started lining up the funds to and Australia, according to itsdiligence, according to a letter sent to buy CommonWealth’s shares, website.CommonWealth today and obtained according to a person familiar with If the company doesn’t cancel theby Bloomberg News. They are also the matter. share offering, Corvex and Relatedprepared to file a lawsuit to stop the CommonWealth, based in may start a proxy fight and try toshare issue, the letter shows. The Newton, Massachusetts, closed at replace members of the board. Ifshares jumped 54 percent, the most $24.40 in New York. The shares were necessary, Corvex and Related wouldsince at least Dec. 18, 1986, according halted earlier after triggering circuit seek to replace the entire board,to data compiled by Bloomberg. breakers. including CommonWealth PresidentRelated and Corvex own 9.8 percent Joanna Rose, a spokeswoman for Adam Portnoy and his father,of CommonWealth’s existing shares Meister and Related, confirmed the Chairman Barry Portnoy, according toand are demanding that contents of the letter. Tim Bonang, a the filing. Investors can call a vote andCommonWealth abandon a planned spokesman for CommonWealth, said replace the trustees with a two-thirdsstock offering, according to a the company will review its options vote, the filing shows.regulatory filing earlier today. and decide whether to meet withCommonWealth said yesterday it Meister and Blau. He declined to Portnoys’ Rolewould issue 27 million shares of new comment on the $25-a-sharestock and use the $450 million in proposal. The two Portnoysproceeds to retire some of its debt, run Reit Management & Researchsending the shares down. Board Overhaul LLC, or RMR, which managesWhile activist funds like Corvex properties for CommonWealth. RMRusually work alone, Meister and Meister and Blau collected $77.3 million inRelated may be pooling their shares not only want to thwart the issuance management fees last year and moreto make it more difficult for of new stock, they are also striving to than $336 million in fees over theCommonWealth to resist their overhaul the board and would even past five years, according todemands. Last year, activist fund be willing to buy the company’s assets CommonWealth’s proxy statement.Relational Investors LLC joined up at a premium to its current market In the filing, Meister and Blau say thatwith the California State Teachers’ price, the filing shows. CommonWealth has depressed itsRetirement System to force REITs, whose primary income streams share price by paying excessivesteelmaker Timken Corp. to split the are from real estate, are required by management fees to RMR. Those feescompany. The activist firms sent a the Internal Revenue Service to represent more than 20 percent ofletter to Timken’s board last week distribute at least 90 percent of their the the firm’s current market …… 2GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – info@geneva-partners.com – www.geneva-partners.com
  3. 3. capitalization, they said in the filing. tions “regardless of financial returns August, he disclosed a stake in foodCommonWealth’s Bonang said the or strategic rationale,” which they producer Ralcorp Holdings Inc. andcompany’s general and administrative want to change. three months later the companycosts, which include management Together, Adam and Barry agreed to sell itself to rival ConAgrafees, amount to 5.2 percent of Portnoy own less than 1 percent of Foods Inc. (CAG)revenue. That compares with a 6 CommonWealth, according to datapercent average in the Standard & compiled by Bloomberg.Poor’s U.S. REIT Office Index. Meister has been active in pressuringPart of Meister and Blau’s immediate companies to make moves thatproposal is to change the increase value for stockholders. In Source : Bloombergmanagement compensation to paythem for creating better shareholder Extractedreturns and replace the company’s from Related &charter and bylaws to improve Corvex Presentationcorporate governance. (source : SEC) ‘Strategic Rationale’They also want CommonWealth tostop selling assets to related partiesand to use cash to buy back shares.Meister and Blau said the managers’fees reward them for making acquisi- SPX Turns Prey as Relational Pushes Asset SalesBy Brooke Sutherland which showed interest in Gardner stock was “significantly undervalued.”February 27th, 2013 Denver, could even be tempted to bid Overpaying for acquisitions hurt for SPX in its current form, SunTrust shareholder returns and profitability, SPX Corp. (SPW), Banks Inc. said. and SPX should unlock value bywhich ended talks to buy equipment “There’s a lot of belief that there’s improving margins and acceleratingmaker Gardner Denver Inc. (GDI) last value here,” Nick Heymann, a New sales of non- core, underperformingyear, is poised to become a target York-based analyst at William Blair & assets, Relational said.itself after activist Relational Investors Co., said in a telephone interview. SPX ended takeover talks withLLC urged it to shed assets and focus Divesting units would make a Gardner Denver in December becauseon industrial pumps. takeover “a much better possibility.” its shareholders didn’t support theRelational this week disclosed an 8.76 Jennifer Epstein, a spokeswoman for deal for the maker of compressorspercent stake in SPX and pressed the SPX, declined to comment on and industrial equipment, two people$3.8 billion company to increase whether the company would be familiar with the matter said at theprofitability and shareholder value by willing to divest units or consider a time. Gardner Denver said it wasaccelerating sales of units not tied to sale. reviewing its options in October afterits core flow-control business. SPX’s investor ValueAct Holdings LP urged astock traded yesterday at a lower ‘Significantly Undervalued’ sale.multiple to revenue and net assetsthan any of its North American peers, SPX produces equipment such as Regaining Trustaccording to data compiled by mixers, evaporators and hydraulicBloomberg. tools for a variety of industries. It got SPX is “going to have to regainConcentrating on pumps for flow more than half of its $5.1 billion in shareholder trust,” David Batchelder,control would make Charlotte, North revenue in 2012 and a majority of its co-founder and principal at Relational,Carolina-based SPX a more likely operating profit from its flow-control now SPX’s second-biggesttakeover target, said Standard & unit, which makes pumps and valves, shareholder, said in a phone interviewPoor’s. A slimmed-down company according to data compiled by on the day of the firm’s filing. “To docould lure buyers from Flowserve Bloomberg. that, they’re going to need to getCorp. (FLS) to GEA Group AG (G1A) as Activist Ralph Whitworth disclosed in back to their previously stated goal ofwell as private-equity suitors, a Feb. 25 filing that his firm Relational becoming a pure-play flow businessaccording to FBR & Co. Buyout firms, had taken a stake in SPX, saying the over time.” .… 3GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – info@geneva-partners.com – www.geneva-partners.com
  4. 4. The company’s stock, which closed Ajay Kejriwal of FBR said divesting at Still, SPX has already outlined itsyesterday at $79.91, traded at least parts of the industrial products intent to become a pure-play flow0.78 times its sales during the past 12 unit as well would position the control company and could build outmonths. That trailed the median remaining flow control-focused that business on its own, according tomultiple of 1.37 among North business as an attractive target for Shannon O’Callaghan, a New York-American flow- control equipment suitors including Flowserve, based analyst at Nomura Holdings Inc.companies valued at more than $1 machinery maker GEA and Lund, “It’s not like you have a managementbillion, according to data compiled by Sweden-based Alfa Laval AB. (ALFA) team that’s executing a wildlyBloomberg. The shares traded at 1.79 “These are good assets,” Kejriwal said different playbook already. They’retimes book value, compared with the in a phone interview from New York. already choosing to sell assets formedian 2.97 multiple for the group, “The flow business could be sold as a good value when they can,”the data show. standalone company.” O’Callaghan said. “Now wouldA simplified business focused on flow somebody else want to lever it upcontrol is likely to lure more interest Private Equity even more or sell things even faster?from potential acquirers, according to Potentially.”Kevin Kirkeby, a New York-based Representatives for Dusseldorf, Private-equity firms, lured by SPX’sequity analyst at S&P. Germany-based GEA didn’t respond consistent revenue stream, free cash“Somebody taking it on now probably to requests for comment sent after flow generation and the opportunitywould have 10 additional items on normal business hours. Steve Boone, for margin expansion, could seek totheir to-do list in terms of really a spokesman for Irving, Texas-based buy the company even before itpulling out the value of the Flowserve, and Chip Bresette of Alfa makes any divestitures, according tobusinesses,” he said. “Those are steps Laval declined to comment on James Kawai, an Atlanta-basedand activities that maybe are beyond whether their companies would be analyst at SunTrust.the scope of some potential buyers.” interested in acquiring SPX if it shed SPX’s operating margin of 6.3 percent assets. during the past 12 months was the Saddle Burr A slimmer SPX would also be lowest among North American peers attractive to private-equity suitors, in the flow- control equipmentIn particular, SPX’s thermal said Kejriwal and Heymann. industry, according to data compiledequipment and services unit, which At least eight private-equity firms by Bloomberg.has seen profits curtailed as demand including Bain Capital LLC, TPG Capital “There’s a sense that here you have afor cooling systems and heat and Onex Corp. expressed interest in business with lots of revenue visibilityexchangers slowed, would deter some acquiring Gardner Denver, according and lots of potential upside on thebuyers, said Heymann of William to people familiar with the matter. margins from operatingBlair. The division accounted for 29 The Wayne, Pennsylvania-based improvements,” Kawai said in a phonepercent of SPX’s revenue in 2012. company last week received a $3.68 interview. “There are not a lot“We had kind of thought that billion bid from KKR & Co., a person of industrial companies that are whateventually at some point or another familiar with the matter, who asked we call under-earning. Most are atthis was going to become a flow not to be named as the process is peak earnings or at very high marginsbusiness and that the flow business private, said. and they’re doing very well. So thiswould then get sold,” Heymann said. one is kind of unique.”The thermal business “is the burr in Same Playbookthe saddle that’s got to get fixed.” Source : BloombergMoodys: Activists Big-Game Hunting in 13February 25th, 2013 Capitals battle with Apple Inc. over consumer goods, basic materials, that companys $137 billion cash pharmaceutical and energy Activist hedge fund horde. companies, especially those whosemanagers are licking their chops this "Record cash on corporate balance stock price have taken a beating, areyear, according to a new report from sheets, a ready supply of inexpensive at highest risk.Moodys Investor Services. debt and increased shareholder riskSuch managers will pursue larger appetite given the low interest-ratetargets this year as corporate balance environment are just a few of thesheets grow alongside investors taste contributing factors," Moodys wrote.for risk, Moodys said in the report, The ratings agency warned thatissued in the midst of Greenlight technology, industrial goods, Source: FINalternatives 4GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – info@geneva-partners.com – www.geneva-partners.com
  5. 5. Gardner Denver to consider buyout as earnings dimBy Greg Roumeliotis and Mridhula advanced due diligence that left them business accounted for $450 million inRaghavan concerned with the companys order annual sales, Larsen said, or about 20Febraury 22nd, 2013 outlook. percent of overall revenue in 2012. This followed the collapse of Gardner Denver said the drilling Gardner Denver advanced negotiations in December pumps business in particular would beInc (GDI.N) prepared for a board with peer SPX Corp (SPW.N) over a weak for the first half of 2013 asmeeting to consider a $3.7 billion deal at $85 per share, people familiar orders it booked in January wouldbuyout offer by KKR & Co LP (KKR.N) with the matter told Reuters at the only be shipped in the second half ofas its 2013 earnings forecast on Friday time. Gardner Denver snubbed first- the year.came well below analysts round private equity offers in the mid- Gardner Denver said it expectsexpectations on weak demand for its to-high $70s per share range when it adjusted first-quarter earnings of 94pumps. entered into exclusive talks with SPX, cents to $1.04 per share, belowThe Wayne, Pennsylvania-based according to the people. analysts expectations of $1.16 percompanys board is set to meet on Gardner Denver is left with one offer share.Monday to review KKRs offer while that is below some of those it "The fact that they havent had thesesupport is growing from top received last year. People familiar orders since the last half of 2012 isshareholders for KKRs offer of $75 with the matter told Reuters last the reason why we have a lower-than-per share, a person familiar with the week the company has considered expected forecast," Maxim Groupmatter said on Friday on condition of leveraged recapitalization as an analyst William Bremer said.anonymity. alternative. However, Bremer expects the backGardner Denver did not respond to a The company made its exploration of half of the year to be better.request for comment while KKR strategic alternatives public in Net income attributable to thedeclined to comment. Gardner October following a Reuters report. company fell 11 percent in the fourthDenver shares rose 5.2 percent to Analyst Cliff Ransom, founder of quarter to $69.1 million, or $1.40 per$70.98 late afternoon in New York. Ransom Research, told Gardner share.Activist investor ValueAct Capital, Denver Chief Executive Michael Excluding items, the company earnedwhich owns 5.1 percent of Gardner Larsen on an earnings call on Friday $1.49 per share, above analystsDenver, issued a statement on Friday he should not consider a major share expectations of $1.33 per share,endorsing the offer and noting it repurchase as a strategic alternative. helped by a restructuring it undertookrepresented a premium of 44 percent "I have one comment and I dont in its European industrial productsover the companys share price on expect you to respond and that is, business.July 26, when it wrote to the that you are getting a lot of heat to do The restructuring will generate $10companys board urging it to explore some kind of a massive buyback, and, million to $15 million in savings ina sale. just as one mans vote, please dont 2013, Larsen said on the call."In our view, this offer should be do that," Ransom said. Revenue fell 4 percent to $589.7considered a successful culmination million, but exceeded analystsof Gardner Denvers sale process and LOWER GUIDANCE expectation of $558.1 million.a wonderful result for all Orders at the engineered productsshareholders. We strongly encourage Gardner Denver business, which includes drillingthe board to accept this offer," forecast adjusted full-year 2013 pumps, fell 28 percent in the fourthValueAct partner Greg Spivy said in earnings of $5.00 to $5.25 per share quarter ended December 31. Theythe statement. versus $5.74 per share in 2012. Wall have now fallen for three consecutiveValueAct is Gardner Denvers third- Street was expecting earnings of quarters.largest shareholder behind T. Rowe $5.31 per share, according to "If it wasnt for the potential bid forPrice Associates Inc, which owns 9.7 Thomson Reuters I/B/E/S. the company, we believe the stockpercent, and BlackRock Institutional "What we are expecting now, based would have been materially downTrust Company, which owns 5.49 on current order trends, based on the today," Bremer said.percent, according to Thomson backlog that we have today, is aReuters data. decline in the 30 to 40 percent rangeKKR is in a lead position to buy the for petroleum and industrial pumpscompany, sources told Reuters, after here in 2013," Larsen said on theother private equity bidders earnings conference call.abandoned the process following The petroleum and industrial pumps Source : reuters 5GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – info@geneva-partners.com – www.geneva-partners.com
  6. 6. Agrium and Jana battle to woo investorsBy Dan McCrum in New York the road with his “dream team” of desperation as it faces a failingFebruary 24th, 2013 directors that included Lyle Vanclief, a campaign”. former Canadian minister of Then came Canada’s family weekend. Just as Canadians agriculture, to woo shareholder As well as moving forward the datewere leaving their offices to enjoy the support. for the annual meeting, Agrium set“family day” long weekend this Agrium fought back in January, telling Monday – just 10 days after itsmonth, Agrium announced a change investors in a lengthy presentation announcement – as the record dateto its annual meeting plans; that “Jana has been peddling its by which shareholders must buy stockshareholders were invited to Alberta flawed analysis since early June,” is in order to vote.for April 9, sooner than their usual “confused on costs” and “cavalier on In the past five years, potentialMay appointment. corporate governance”. investors were given one month’sThe move was a rare public sign of Jana disagrees, and the true level of notice. Mark Connelly, an analyst forwhat has become a bitter battle for investor support for either side is hard CLSA says that “Friday after the closeinvestor hearts and minds as Agrium to judge. But early this month Agrium at the start of a holiday weekend isn’tand its largest shareholder Jana, the approached Jana about a deal. typically when company boards$4.5bn activist hedge fund run by The company proposed to add two disclose things they are proud of”.Barry Rosenstein, compete for independent directors to its board, He says that the reason for the movesupport. with Jana nominating a third. “is to try to stem the tide of newAgrium distributes agricultural People familiar with the discussions investors”, as hedge funds such assupplies on an industrial scale and at describe a weekend of talks that Dan Loeb’s Third Point have begun tothe retail level, and Jana argues that Agrium considered “an armistice, not buy Agrium stock.were the $15bn company to be a negotiation”. Documents reviewed Mr Rosenstein’s group now ownsbroken up, the retail business would by the Financial Times indicate that more than 7 per cent of Agrium, andbe more highly valued on its own. the company’s demands included an other US investors have been buying,The hedge fund approached the end to Jana’s call for a break-up, no but Canadian support is still likely toboard in May last year, then met with further public criticism and the determine victory. Last year theymanagement in June. Agrium hired investor’s agreement that “the showed they were prepared to backMorgan Stanley to look at the idea Agrium retail business is well run”. another New York activist when Billover the summer, while Jana Negotiations collapsed. Jana says that Ackman’s Pershing Square pushed outcompared notes on Agrium’s Agrium’s nominees, Mayo Schmidt the board and chief executive ofvaluation with private equity firms, and David Everitt, “have been pre- Canadian Pacific, a railroad company.said people familiar with the screened to ensure compliance with Jana’s success or failure will be a keydiscussions. the status quo”. test of the extent to which thatThen in August, relations soured. The Jana also says that “Agrium did not victory represents a threat to thebank advised against the spinoff, and cast a very wide net to locate new Canadian boardroom status quo, andAgrium went public, starting a tit-for- board appointee Mayo Schmidt”. Agrium appears keen to have thetat competition of PowerPoint It says the former chief executive of answer as soon as possible. “Jana haspresentations. Jana was fresh from a Viterra personally earned more than been running its campaign for overvictory at McGraw-Hill, which it C$30m when Viterra was bought by eight months now. We are holdingpushed to spin out its educational Glencore in a transaction that our annual general meeting a monthpublishing business, and it took that involved Agrium. earlier than usual to bring this matterplaybook to Agrium, pitching a split to Agrium says: “Jana has continued to to a close.”an October conference of fellow spin highly flawed analyses andinvestors. Agrium, meanwhile, inaccurate perceptions”, and “isdecided to give cash back to confident this reflects Jana’s growing Source : The Financial Timesshareholders, launching a C$900m(US$881m) tender offer torepurchase shares. Extracted From AgriumBy November, Mr Rosenstein hadbegun a fight for boardroom response to Jana entitled :representation, seeking to add «Setting the Record Straight»himself and four others to the Source : SECcompany’s 13 person board. He hit 6GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – info@geneva-partners.com – www.geneva-partners.com
  7. 7. Hess Tangled Family Ties Targeted in Shareholder RevoltBy Jim Polson Hess has been a director since 1978, “It doesn’t make sense to have aFebruary 27th, 2013 according to filings. board this large without some independent oil and gas experience,” Hess Corp. (HES)’s Will Executors said David H. Batchelder, principalshareholder revolt is taking aim at and co-founder of the San Diego,long-time directors with close ties to Former New Jersey Governor Tom California-based shareholder. “Athe company’s founding family, Kean, 77, who has been on the board person with oil and gas experience isincluding two executors of the estate 22 years, also is an executor of the more able to challenge managementof Leon Hess, who led the oil estate of Leon Hess, according to and press them on how they areproducer for six decades. court records. Leon Hess also owned controlling their well costs.”Activist investor Elliott Management the National Football League’s NewCorp. is demanding new blood on the York Jets. Poor Spending14-member board whose average “The Hess board has the lowest ratelength of service is more than 13 of independence, least oil and gas Lowest costs will determine theyears, about 5 and 1/2 years longer operating experience, most winners among companies exploitingthan the average of its peers, management directors and one of the the Bakken and other new oil findsaccording to data compiled by longest tenures of any of Hess’s that involve fracturing hard rock toBloomberg. Hess has fallen 32 percent peers,” Elliott said in a Jan. 29 letter extract oil trapped over wide areas,in the past five years while the 43- to shareholders. “The confluence of Batchelder said. In a Jan. 30 lettercompany Standard & Poor’s 500 these dynamics calls into extreme made public by Relational, he urgedEnergy Index has fallen 2.9 percent. question the ability of this board to John Hess to open talks withElliott, an investment vehicle of effectively oversee John Hess.” shareholders so that a proxy fight canbillionaire Paul Singer, acquired a 4 Hess says it routinely reviews its be averted.percent stake in the New York-based corporate governance and assesses “We agree with Elliott that Hess isoil company and in January began board composition. undervalued,” Bank of Americapressing Chairman and Chief Merrill Lynch Analyst DougExecutive Officer John Hess, 58, to sell Accomplished Board Leggate wrote in a Jan. 31 note toassets. On Jan. 29, Elliott proposed a clients. “We are less convinced thatslate of five new directors, most with “This focus has been a significant closing the value gap is somethingenergy industry experience, and priority of ours in the context of our Hess could not achieve on its own.”suggested a spinoff of Hess’s announced transformation to be Elliott has also said that directors areoperations in North Dakota’s Bakken more focused in the E&P too entwined with the Hess family todeposit so the company can focus on business,” Jon Pepper, a Hess function as independent overseers.its offshore oil and natural gas fields. spokesman, said in an e- mailed Some of the directors’ relationships“Boards need to represent the response to questions for this story. date back decades.investors and they need to be flushed “We would note that our currentout every so often,” Charles Elson, board is comprised of highly Independent Directorsdirector of the University of accomplished directors who deserveDelaware’s Center for Corporate credit for initiating the multiyear Nothing among the non-executiveGovernance in Newark, Delaware, transformation that started in 2010 directors’ relationships compromisessaid in an interview. and that continues today.” their independence, the company hasFour of the Hess directors served Hess has been conducting a review of said in filings.during the chairmanship of founder its corporate governance, in light of “In the U.K., most pension funds lookLeon Hess, who retired as chairman in the complaints from Elliott and at any director with tenure of 101995 and died in 1999. Among them shareholder Relational Investors LLC, years or more as non-is former U.S. Senator and Treasury said a person familiar with the matter, independent,” Paul Hodgson, anSecretary Nicholas Brady, 82, listed in who declined to be identified because independent corporate governanceHess filings as a lead independent the discussions are private. analyst based in Camden, Maine, saiddirector. Brady has been on the board Some of Elliott’s concerns have been in a telephone interview.more than 18 years. Brady is an echoed by Relational, which has a 3.4 Relationships that aren’t publiclyexecutor of the estate of Leon Hess, percent stake in Hess. Relational has disclosed under regulatory rules “doas is current Hess Chairman and CEO urged Hess to bring in board have an effect on this very collegialJohn Hess, the founder’s son. John members with industry experience. board.” ….. 7GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – info@geneva-partners.com – www.geneva-partners.com
  8. 8. John Hess is president of the Hess returned. Holiday didn’t return shareholders and company for HessFoundation Inc., a $613.4 million messages left at RTI International to meet with Elliott and avoid a proxycharitable foundation, according to Metals Inc., where she works. fight, Elson, the Delaware professor,the most recent available tax filing. Hess’s spokesman said the company said.Kean has been secretary of the credited its board with its John Hess said he was willing to meetorganization, whose recipients have transformation in recent years. with Elliott to discuss their ideas. Johnincluded Harvard University, Lincoln “Through their direction, we have Hess said in a Jan. 28 statement. “WeCenter and Operation Smile, achieved industry leading positions in have no sacred cows in the business,”according to tax filings. the Bakken and elsewhere, which the he said during a Jan. 30 earnings call.As New Jersey governor, Kean market clearly recognized well before “We have no sacred cows in theappointed Brady to the U.S. Senate in Elliott came on the scene.” boardroom.”1982. The two have ties with other Shareholders showed theirdirectors. Edith Holiday, another dissatisfaction with Brady and Kean in Response Plannedholdover from the chairmanship of 2010 when about a third of votedLeon Hess, was a Senate aide to Brady shares were withheld when they ran No meeting has been held orand general counsel of the U.S. unopposed for re-election. scheduled since Elliott notified Hess itTreasury Department when Brady was Withholding votes is a way for intended to propose new boardsecretary, according to public shareholders to show dissent when members, Elliot Sloane, a spokesmandocuments. there are no alternative candidates. for the investment firm, said in a This year, Elliott says it will propose telephone interview yesterday. Voting Power a slate of new directors comprised of Hess plans to respond to Elliott next four with oil and gas experience: week, according to the personFormer U.S. Senator Sam Nunn, Rodney F. Chase, former deputy CEO familiar with the matter.appointed last year and the newest of BP Plc; Karl Kurz, former chief The confrontation follows shareholderHess director, is chairman of the operating officer at Anadarko interventions at energyCenter for Strategic and International Petroleum Corp. (APC); David companies Chesapeake Energy Corp.Studies in Washington, where John McManus, former executive vice (CHK), Murphy Oil Corp.Hess is a trustee. president at Pioneer Natural (MUR),SandRidge Energy Inc. (SD),John Hess, Brady and Kean are among Resources Inc.; and Mark Smith, chief Nabors Corp. and Transocean Ltd.the four managers of a limited financial officer of Ultra Petroleum (RIG) Activist investor Carl Icahn,partnership that owns 8.8 million Corp. (UPL) The fifth is Harvey Golub, voicing objections similar to thoseshares of Hess, the company reported former chairman and CEO of Singer has raised at Hess, succeededin a Feb. 13 filing. American Express Co. in remaking Chesapeake’s board andJohn Hess has sole voting power on forcing out its founder, chairman and27.5 million Hess shares, including Board Experience CEO, Aubrey McClendon.those held by the family foundation,shares held by his father’s trust, as None of Hess’s 11 independent ‘Natural Tension’well as those held in trust for other directors list experience in oil and gasfamily members, according to the production in filings. Two of them, Three of Hess’s 14 board membersfiling. former U.S. Energy Secretary Samuel are executives at the company. “HessThe CEO and the partnership control Bodman and Craig Matthews, former has been left behind by the rest of theabout a 10.7 percent stake, according chief executive officer of NUI Corp., a industry, even those whoseto data compiled by Bloomberg. That New Jersey utility owner, have energy governance has been as bad incompares with 7.3 percent held by experience. different ways as Hess’s,” saidthe funds of activists Elliott and Hess should place at least two or Hodgson, the corporate governanceRelational. three of the Elliott nominees on its analyst. Hess stands out by allowing board without a proxy fight, John Hess to be both chairman and Votes Withheld Batchelder said yesterday in a CEO and for pulling more directors telephone interview. The company from executive ranks such asBrady, Kean, Holiday and the other should be seeking to raise at least $5 production president Greg Hill andindependent directors meet all billion from asset sales this year, more refining and marketing presidentcriteria for independence under New than the $2 billion of cash expected Borden Walker.York Stock Exchange rules, Hess said from selling the oil and gas terminals Hess has maintained staggered three-in a 2012 proxy filing. Hess has said it will divest, Batchelder year board terms after a majority ofCalls to the offices of Kean and Brady said. shareholders voted three times infor comment on the article weren’t It’s in the best interest of the favor of annual elections. ….. 8GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – info@geneva-partners.com – www.geneva-partners.com
  9. 9. The Federation of State, County and Mobil Corp. (XOM) drilled dry holes in Nafta ZAO this year.Municipal Employees and North 2009 and 2011, Hess added oil fields Hill, Hess’s president of explorationCarolina Treasurer Janet Cowell in North Dakota’s prolific Bakken and production and among the boardproposed the change, arguing in Shale. It formed Appalachian shale members whose terms expire thisproxies that annual elections make ventures with coal miner Consol year, has told investors that Bakkenboards more responsive to investors. Energy Inc. in 2011 and with Newfield drilling in 2012 set the stage forIn a 2012 proxy statement, Hess Exploration Co. in 2009. It’s been cheaper, more productive wells indefended staggered terms as ensuring selling other assets to finance 2013.“stability and continuity” of company accelerated onshore drilling. “Activism is booming,” Paul Sankey, aleadership. Staggered terms also Added to planned divestitures on Jan. New York-based analyst for Deutschemake it more difficult for Elliott to 28 after the company received Bank Securities Inc., wrote in a notepush its agenda on the company since Elliott’s letter suggesting changes, are yesterday on ConocoPhillips. He ratesit can only challenge five board 19 crude terminals along the U.S. Hess shares a buy and owns none.members this year, Hodgson said. Atlantic Coast. At the same time, Hess “Boards generally seem weak and at said it would close its last refinery by the mercy of management.” Falling Sales the end of February.“Managers, even those as entrenched Hess Outputas they are here would be ill-advisedto ignore this,” he said. In the fourth quarter, Hess outputAnnual sales at Hess have fallen 8.4 was equivalent to 396,000 barrels ofpercent since 2008 as spending to oil a day in last year’s fourth quarter,develop new oil and gas fields about 1.7 percent more than the samedoubled. period five years earlier. Hess on Jan.Stung by disappointing offshore 30 forecast the equivalent of 375,000development such as its 40 percent to 390,000 barrels of oil a day averageownership in a section of Brazil’s daily 2013 production, as it sells itsCampos offshore basin where Exxon stake in Russian producer Samara- Source : Bloomberg Franck Berlamont Jean-François BassignotThis newsletter has been prepared by, and is subject to the copyright of, Geneva Partners S.A. (Geneva Partners).This newsletter is confidential and has been furnished to the intended recipient solely for such recipient’s information and private useand may not be referred to, disclosed, reproduced or redistributed, in whole or in part, to any other person.This newsletter has been prepared on the basis of information provided to Geneva Partners and publicly available information. Thisinformation has not been independently verified by Geneva Partners. This newsletter does not constitute a due diligence review andshould not be construed as such. No representation or warranty as to this newsletters accuracy, completeness or correctness is madeand no reliance should be placed on the accuracy, completeness or correctness thereof. The information contained, and any opinionsexpressed, in this newsletter are subject to change at any time and Geneva Partners is under no obligation to inform the intendedrecipient or any other person of any such change.Geneva Partners accepts no responsibility or liability whatsoever in relation to this newsletter (including for any error or in relation tothe accuracy, completeness or correctness of this newsletter). The exclusion of liability provided herein shall protect Geneva Partners,its officers and employees in all circumstances.This newsletter is not intended to form the basis of any investment decision and does not constitute or form part of any offer to sell oran invitation to subscribe for, hold or purchase any securities or any other investment, and neither this newsletter nor anythingcontained herein shall form the basis of or be relied on in connection with any contract or commitment whatsoever. This newsletter isnot, and should not be treated or relied upon as investment research or a research recommendation under applicable regulatory rules.Geneva Partners is a member of the Swiss Association of Asset Managers (SAAM). 9GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – info@geneva-partners.com – www.geneva-partners.com

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