DealBook: Hess to Sell Gas Stations as Part of a Shift in Strategy

Ángel Franco/The New York TimesA Hess gas station in Brooklyn. The company said Monday it would sell all its gas stations, but a big investor wanted more changes.

8:55 p.m. | Updated The Hess truck may be going in a yard sale.

Known for its white-and-green gas stations, the Hess Corporation announced on Monday a plan to sell off its retail and refining operations and focus primarily on oil production.

The streamlining comes as it seeks to fight off an activist investor, the hedge fund Elliott Management, although Hess presented the new strategy as the culmination of a multiyear campaign.

Despite the changes announced by Hess, including six new directors, Elliott said significant problems remained.

Related Links

• Document: Hess letter to investors

The statements on Monday signal a possibly prolonged battle between Hess and Elliott, the latest in a flurry of campaigns by activist investors. The hedge fund, led by Paul Singer, disclosed last month that it owned a 4 percent stake in Hess and nominated five candidates for the company’s board in what it said was an attempt to impose discipline on a wayward oil producer that lagged its peers.

Elliott was later joined by Relational Investors, another activist investor with deep roots in the oil industry.

Hess described its plans, which will further center the company on finding and developing new sources of oil, as a natural evolution of a turnaround begun years ago. Other companies, including ConocoPhillips, have made similar moves in the last three years.

“It’s the logical endpoint of our five-year plan,” John B. Hess, the company’s chief executive and the son of its founder, said in an interview by phone on Monday.

Mr. Hess explicitly rejected any notion that Monday’s plan was spurred by outside pressure — “Elliott got on the train after it left the station,” he said. But the moves further narrow the company’s focus, as the hedge fund has demanded.

The retail operation, which includes more than 1,350 gas stations primarily in the Northeast, the Carolinas and Florida, accounts for just 4 percent of the company’s revenue. (While the fate of the toy Hess trucks remains in question, the company expects the 2013 models to be ready in time for Christmas, batteries included.)

In addition, Hess will sell holdings in Indonesia and Thailand.

At the same time, the company sought to demonstrate its responsiveness to shareholders, announcing a big jump in its dividend payments, to $1 from 40 cents a share, and a stock buyback of up to $4 billion.

And perhaps most prominent, Hess named six new directors to its board, most of whom are former oil industry executives. They include John Krenicki Jr., a former head of GE Energy; William Schrader, a former chief operating officer of TNK-BP; and James H. Quigley, a former chief executive of Deloitte.

In naming its director candidates last month, Elliott criticized the board’s ties to the Hess family. Mr. Hess defended the departing directors as having helped shape the current strategy, but acknowledged that the board needed some new blood.

The directors who are leaving include Thomas Kean, a former governor of New Jersey; Samuel A. Nunn, a former United States senator from Georgia; and Gregory P. Hill, Hess’s president of worldwide exploration and production.

“With the new company that we’re becoming, we feel that we have the right people for the board,” Mr. Hess said.

But Hess explicitly rejected Elliott’s biggest recommendation: dividing the company into a domestic driller with a big presence in the Bakken shale formation and an international oil producer.

For its part, Elliott said it was unswayed by the plans, noting that Hess had announced several end points in its turnaround campaign since 2010. The hedge fund also said that the company had understated its poor stock performance in the months before Elliott announced its intentions, and that Hess had minimized years of mismanagement.

“Hess’s announcement is incomplete and it lacks accountability,” Elliott said in its statement. “Substantial change needs to be delivered rather than partial change promised.”

Investors appeared to respond favorably to the new strategy. Shares of the company rose 3.5 percent on Monday, to $68.84. They have risen over 10 percent since Elliott formally began its proxy fight.

And analysts praised the moves as well.

“We applaud the changes,” analysts at Wells Fargo wrote in a research note on Monday. They added that it was clear “management clearly is accelerating the changes rather than digging in its heels and fighting with its newest shareholders.”

This post has been revised to reflect the following correction:

Correction: March 4, 2013

Article source: http://dealbook.nytimes.com/2013/03/04/hess-to-sell-refining-arm-and-revamp-its-board/?partner=rss&emc=rss