Hess Corp. CEO John Hess is claiming that shareholder Paul Singer’s Elliott Management Corp. may pay board nominees to liquidate the company.

Hess outlined his accusations in a letter to shareholders on Tuesday. “Under this highly unusual scheme, Elliott would control its directors by potentially paying them millions in cash to effectively dismantle Hess,” he wrote.

Elliott, which is the second-largest shareholder in Hess, has pushed for an overhaul of the company, including election of five new board members that it has proposed. The annual meeting is scheduled for May 16.

Hess has rejected most of Elliott’s proposals, including its suggested board members. However, earlier this month the producer said that it would become a pure-play exploration and production (E&P) company by fully exiting its downstream and retail businesses (see Daily GPI, March 5).

“Singer’s claims regarding Hess [board] nominees are nonsensical and demonstrate a fundamental ignorance about E&P,” said the letter.

Hess also lashed out at the payouts that Elliott proposes to make to the potential board members. Elliott agreed to make a one-time $50,000 cash payment to each candidate nominated to the Hess board, according to a filing with the Securities and Exchange Commission.

The hedge fund also agreed to pay the nominees bonuses of $10,000 for each 1% that Hess shares exceed the average total return of peers in the first three years if any of the candidates makes it onto the board. Elliott-backed board members who are appointed or elected to the board also would be eligible for $20,000 for each 1% of out-performance.

“Mr. Singer has stated that the best indication of what someone will do is to look at what they have done,” said the Hess letter. “As we approach our annual meeting, we would ask that you look at what Mr. Singer has done: launched a proxy fight without holding any conversations with the company; put forth a fundamentally flawed plan for Hess; and nominated director candidates tethered to his flawed plan by a highly unusual compensation scheme leaving them beholden to him. Is this the kind of accountability that will deliver value for all Hess shareholders?”

Elliott responded with a missive a few hours later.

“After 460% underperformance, John Hess has no record to run on and has resorted to misrepresentations and scare tactics,” said Elliott’s letter. The claims that shareholder nominees would be paid to “liquidate the company” or carry out “an Elliott plan” are false, it said.

“We believe that all shareholders should find any such mischaracterizations offensive. Hess has a detailed description of the agreement and competent attorneys paid for with shareholder money. Any such attempt to mislead these same shareholders would be outrageous and inconsistent with management’s obligations as a fiduciary.”

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