Hess Corp. (NYSE:HES) Chairman & CEO John Hess orchestrated a strong response to activists, with additional disposals increasing focus. After all these years unchanged, the dividend was boosted off a low base, and a significant buyback programme, funded by disposals, was announced. A new slate of directors has been assembled. The issue is actually personal. That is, Elliott Associates strategy, is to replace the board, Chairman John. They have suggestions for actions, but it is really about corporate governance & perceived management quality. In that regard, it is interesting that the Hess response to Paul Singer (Elliott) is so personal. And the Elliott re-response so aggressive.

Oil commodity and equity markets are highly liquid and send strong messages. Larger oil companies, with less focus, trade at lower valuations than smaller more focused names. Why? Scale is only an advantage in a low oil price environment. It makes growth even harder. It does not always generate better returns.

Therefore many investors want larger less focused companies with low multiples to shrink and return cash to shareholders. The key issue here is to generate a net asset value, published within this note, and then assess how much of that can be released through corporate action. Some think that for Hess the Bakken can be a standalone business trading at a higher multiple than Hess Corp. (NYSE:HES)’s. Disposing of the rest of the asset base would release value.

BAML has some indirect criticism of Elliott Associates. They state ” Hess Corporation’s much anticipated response to Elliott Management deals what we believe will prove a knockout counter-proposal and provides line of sight on the next leg of the recovery. The extent to which Elliott’s proposals may have influenced management is unknown; but we believe this is proving a win-win for investors given that it has accelerated disclosure on management’s longer term restructuring plans.”

Furthermore, BAML notes ” While Elliott has galvanized the issue for the street, we view the recovery set in place by management well before Elliott entered the fray as compelling.”

This battle could last for a very long time

Deutsche Bank analysts believe that this battle is far from mover. They note that the scale of the Hess Corp. (NYSE:HES) response here indicates major concern over the proxy fight. Yesterday’s move was well received by the market. Is it enough? Time will tell, as the positioning of activist vs CEO and Chairman is clearly taking this process to a vote in May, which would be the first tranche of directors on this staggered board. John Hess is up for re-election next year. By that time, we will know the new board composition, and strategic action.