Hess’ Retail Spinoff Saga Ends With Sale of Downstream Assets to Marathon Petroleum

We didn’t really cover this saga, but last year Hess Corporation (HES) was embroiled in a heated proxy battle with Paul Singer’s Elliott Management. The fund argued (and put together a nice presentation) that the company was poorly managed, had lousy governance (too many cronies on the board) and was undervalued on a sum of the parts basis. As part of the solution, Elliott suggested the company spin off its Bakken assets and pursue asset sales, but the company resisted. The attack shook up Hess though and the company soon announced its own restructuring initiatives including the nomination of several new board members with relevant experience, plans to return capital to shareholders via dividends and buybacks and the pursuit of asset sales including an exit of its downstream assets. At the time, several of its peers, including Marathon (MRO), Valero (VLO) and Murphy Oil (MUR) had pursued/were in the process of taking the same approach with their downstream assets.

Elliott was not satisfied though and a public battle of letters ensued. Hours before the deciding shareholder meeting though, the two sides reached an agreement to place Elliott’s three nominees on the board in exchange for the fund’s support of management’s nominees. Additionally, John Hess gave up his chairmanship role. Overall, this was viewed as a big win for Elliott.

Since that date, many things have changed at Hess as it transforms itself into a pure E&P player. The company has sold off over $10b of assets around the world. Additionally, in January, the company filed plans to spin off its downstream assets, Hess Retail Corp, however, the company also noted that it was still open to selling those assets if a buyer could be found. The M&A landscape changed a few months later though when Energy Transfer Partners announced that it would acquire Susser Holdings (itself a carve out of Susser Partners) for the hefty price tag of $1.8b. The rich valuation made a possible sale of Hess more attractive, putting the spinoff on shaky ground.

Sure enough, Hess was able to find a suitor for its downstream assets in Marathon spinoff, Marathon Petroleum Corporation (MPC). The deal price announced is $2.6b and the company will use the proceeds for additional share repurchases.

Bye bye spinoff, although Hess shareholders aren’t complaining. The company is currently trading close to its 52 week high and has been a strong performer since Elliott has gotten involved. Chalk this up as another victory for the activists.

Disclosure: Author holds no position in any stock mentioned.