425: Glass Lewis Recommends Hess Shareholders Approve Chevron Merger

Independent proxy advisory firm Glass Lewis recommends Hess shareholders vote in favor of the proposed merger with Chevron, citing strategic and financial merits.

Summary

• Glass Lewis recommends Hess shareholders vote for the proposed merger with Chevron.
• The advisory firm believes the merger has sound strategic and financial benefits.
• Hess shareholders will have the opportunity to participate in the potential future upside of the combined company.
• The all-stock transaction locks in value for Hess shareholders at its all-time high price.
• Hess shareholders are expected to own approximately 15% of the combined company.
• Increased cash returns, including dividends and share repurchases, are expected to be nearly 9 times the current level upon closing.
• The merger provides greater asset and geographic diversification, a stronger balance sheet, operational and cost synergies, and expanded global partnerships.
• Hess shareholders can continue to participate in the upside of Chevron's free cash flow growth through the all-stock deal.

Sentiment

Score: 7

Explanation: The document conveys a positive sentiment regarding the proposed merger, emphasizing the benefits for Hess shareholders and the support from Glass Lewis. However, it also acknowledges potential risks and uncertainties, preventing a higher score.

Positives

• Independent proxy firm Glass Lewis supports the merger.
• Hess shareholders gain approximately 15% ownership in a premier supermajor.
• Cash returns to Hess shareholders are expected to increase significantly.
• The merger provides diversification and a stronger balance sheet.
• Hess shareholders can participate in Chevron's future free cash flow growth.

Risks

• Regulatory approvals may not be obtained or may be subject to unanticipated conditions.
• Delays in consummating the transaction may occur due to regulatory proceedings or ongoing arbitration regarding preemptive rights in the Stabroek Block joint operating agreement.
• The ongoing arbitration may not be satisfactorily resolved, causing the transaction to fail.
• Chevron may face challenges in integrating Hess operations successfully and within the expected timeframe.
• Anticipated benefits and synergies of the transaction may not be realized or may not be realized within the expected time period.
• The merger agreement could be terminated due to unforeseen events or circumstances.
• The anticipated tax treatment of the transaction may not be obtained.
• Unexpected future capital expenditures may arise.
• Potential litigation relating to the transaction could be instituted against Chevron and Hess or their respective directors.
• The transaction may be more expensive to complete than anticipated.
• The announcement, pendency, or completion of the transaction may negatively affect business relationships and operations.
• The transaction may disrupt current plans and operations of Chevron or Hess, and Hess employee retention may be difficult.
• Changes to the company's capital allocation strategies may occur.
• Uncertainties exist as to whether the transaction will be consummated on the anticipated timing or at all, or if consummated, will achieve its anticipated economic benefits.
• Changes in commodity prices may impact the combined company.
• Negative effects of the announcement of the transaction, and the pendency or completion of the proposed acquisition on the market price of Chevron's or Hess' common stock and/or operating results.
• Rating agency actions and Chevron's and Hess' ability to access shortand long-term debt markets on a timely and affordable basis.
• Various events that could disrupt operations, including severe weather, and cybersecurity attacks, as well as security threats and governmental response to them, and technological changes.
• Labor disputes.
• Changes in labor costs and labor difficulties.
• The effects of industry, market, economic, political or regulatory conditions outside of Chevron's or Hess' control.
• Legislative, regulatory and economic developments targeting public companies in the oil and gas industry.

Future Outlook

The document expresses optimism about the successful completion of the merger and the anticipated benefits for Hess shareholders, including increased cash returns, diversification, and participation in Chevron's future free cash flow growth. However, it also acknowledges various risks and uncertainties that could affect the outcome.

Management Comments

• CEO John Hess stated that they are pleased Glass Lewis recognizes the value of the strategic transaction.
• CEO John Hess believes voting FOR the all-stock Chevron transaction is the best, most accretive value option for shareholders.

Industry Context

This announcement reflects the ongoing consolidation trend in the oil and gas industry, where companies are seeking to enhance their portfolios, achieve synergies, and strengthen their balance sheets through mergers and acquisitions. The merger aims to create a stronger, more diversified energy company capable of competing effectively in the global market.

Comparison to Industry Standards

• The document highlights the potential for increased cash returns to Hess shareholders, which is a key metric for evaluating the attractiveness of the merger compared to other investment opportunities in the energy sector.
• The combined company's stronger balance sheet and diversified asset base are expected to improve its credit rating and access to capital, aligning with industry standards for financial stability and growth potential.
• The anticipated operational and cost synergies are aimed at improving the combined company's efficiency and profitability, which are critical factors for competing effectively with industry peers such as ExxonMobil, Shell, and BP.

Stakeholder Impact

• Shareholders are expected to benefit from increased cash returns and participation in the combined company's growth.
• Employees may experience changes in roles and responsibilities due to the integration of the two companies.
• Customers and suppliers may see changes in business relationships and terms.
• Creditors may benefit from the combined company's stronger balance sheet and credit rating.

Next Steps

• Hess shareholders need to vote on the proposed merger with Chevron.
• Regulatory approvals need to be obtained.
• The ongoing arbitration proceedings regarding preemptive rights in the Stabroek Block joint operating agreement need to be resolved.

Key Dates