Activist investor Paul Singer notched yet another high profile victory, as Marathon Petroleum Corp (NYSE:MPC) agreed to acquire Hess Corp. (NYSE:HES)’s gasoline stations and retail stores for $2.87 billion today.
Hess under pressure from activist hedge funds
Singer’s hedge fund Elliott Management and other activist funds had been pressuring Hess Corp. (NYSE:HES) to change their management approach and were granted three board seats, awarded to Singer loyalists in 2013 who were looking to shake up the company. In what the New York Times called one of the biggest corporate governance fights of the year, Elliott vowed a change to what was termed a board filled with cronies of the founding family.
Hess Corp. (NYSE:HES) was led by John B. Hess, son of the founder, and the board included political leaders with little experience in the oil business, including former New Jersey Governor Thomas H. Kean and Former US Senator Sam Nunn (D-GA).
Share buyback, common activist tactic, to ensue after sale
The deal to acquire Hess Corp. (NYSE:HES) includes the company’s 1,342 retail locations, with the largest concentration along the East Coast. After the sale, Hess will focus on oil production and exploration, after Elliott was sharply critical of Hess in its failure to capitalize on new exploration, including oil shale production in North America.
Following the Elliott prescribed playbook, Hess CEO John Hess said in a statement: “The sale of our retail business marks the culmination of our strategic transformation into a pure-play exploration and production company.” Sources close to the deal, however, denied that Elliott pressure played a part.
The sale will grease the way for additional share repurchases, a common tactic used by activist hedge funds to boost the share price of a stock. Hess Corp. (NYSE:HES) boosted its buyback authorization to $6.5 billion from $4 billion, the company said in a statement.
The $2.87 billion deal includes $2.37 billion in cash, $274 million in capital leases and $230 million of working capital and is likely to be financed with a combination of debt and cash on hand. The deal should close in the third quarter of 2014.