Hess Corp’s (NYSE:HES) CEO, John Hess, is facing a critical deadline until Tuesday to address shareholder concerns regarding the proposed $53 billion merger with Chevron Corp. (NYSE:CVX) The potential merger, one of the largest in the oil industry’s history, has encountered resistance from shareholders, prompting a last-minute effort by Hess to secure approval.
Despite initial optimism surrounding the merger, recent developments, including a prolonged U.S. federal regulatory review and an unexpected arbitration challenge from Exxon Mobil, have cast doubt on the deal. Approximately 40% of outstanding shares are now on the fence, posing a significant challenge for Hess to garner the required approval.
While Hess can rely on family shares and support from other directors and management, the erosion of market value, amounting to approximately $5 billion since the deal’s announcement, underscores growing investor skepticism. Delays in the merger process have further exacerbated concerns, particularly regarding missed dividend payments from Chevron.
Notably, three prominent firms – HBK Capital Management, D.E. Shaw & Co, and Pentwater Capital Management – have expressed reservations about the merger, collectively holding almost 6% of Hess. Additionally, several investors have initiated lawsuits to block or delay the vote, citing concerns over undisclosed legal and regulatory issues.
The uncertainty surrounding the merger has prompted some investors to consider abstaining from the vote, potentially tipping the scale against approval. ISS, an influential proxy advisor, has recommended abstention to allow for more clarity on the arbitration case, while Glass Lewis has endorsed a vote in favor, citing the merits of the Chevron deal.
The outcome of the vote may hinge on the stance of major institutional investors, such as Vanguard Group, which holds the largest individual stake in Hess. However, the involvement of Exxon Mobil adds another layer of complexity, as its arbitration case could derail the merger by asserting a first right of refusal to buy Hess’ Guyana assets.
Chevron, keen on completing the merger to bolster its position in the oil market, awaits a successful shareholder vote. Nonetheless, the potential ramifications of Exxon’s arbitration success and the uncertainties surrounding alternate buyers have left Hess shareholders and industry analysts apprehensive about the merger’s fate.
As the deadline approaches, Hess and Chevron brace for a pivotal moment in their merger journey, with the outcome likely to shape the future trajectory of both companies in the oil industry landscape.
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