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ISS recommends Hess shareholders abstain from voting for merger with Chevron

REUTERS | 2024.05.14 | Sabrina Valle; Houston

Chevron and Hess logos are seen in this illustration taken, October 23, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

(Reuters) -Proxy advisor Institutional Shareholder Services (ISS) recommended on Monday that Hess shareholders abstain from voting on Chevron's proposed $53 billion buyout of the oil and gas company, which has been stalled due to a conflict with rival Exxon Mobil.

ISS urged the vote be adjourned to allow more time for details on the arbitration process with Exxon to emerge. Hess shareholders are due to vote May 28 on the deal.

Chevron last October offered to acquire Hess in a move to gain a foothold in oil-rich Guyana's lucrative offshore fields.

The deal has become mired in a regulatory review and challenged by Exxon, which claims it has a right of first refusal to Hess's prized Guyana assets.

A decision on the arbitration between the companies might not be reached this year. The deal, proposed in October, is also pending regulatory approval by the Federal Trade Commission (FTC).

"Investors are presently unable to make an informed assessment," ISS said, adding that an approval now would prevent Hess shareholders from considering better sale proposals.

Chevron and Hess say they remain confident that the right of first refusal claimed by Exxon does not apply and that the arbitration will be concluded in five to six months. But Exxon has publicly suggested the arbitration will stretch well into 2025, ISS said.

ISS offers analysis and recommendations to institutional investors regarding how to vote on corporate governance matters and proposals at shareholder meetings.

Hess did not immediately respond to requests for comment.

"We look forward to Hess obtaining a successful shareholder vote and completing the transaction," a Chevron spokesperson said.

Without a delay to the vote, "Hess shareholders bear the risk of a potentially broken deal without any compensation," ISS said.

Chevron can walk away from the deal without paying a $1.7 billion termination fee if it loses the arbitration and Exxon can seek to prolong the arbitration until it decides whether it really has no interest in ever acquiring Hess, the firm said.

Exxon and CNOOC Ltd, Hess' partners in Guyana, filed cases before the International Chamber of Commerce in April, seeking to claim a right to a first refusal over any sale of Hess's 30% stake in the giant Stabroek offshore oil block, home of the largest oil discovery in nearly a decade.

ISS also said the premium offered by Chevron for Hess shares - about 5% - is modest and suggested that Chevron offer an incentive to compensate Hess shareholders for a potential delay in the deal closing.