Under Pressure, Hess Sells Retail Operations

Hess

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.

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About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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