[HOUSTON] Chevron bought nearly 5 per cent of Hess in an unusual move designed to show confidence that it will win the arbitration battle with ExxonMobil that has delayed its planned takeover of Hess for more than a year.
Chevron bought the Hess shares at a discount to the price implied by its US$53 billion all-stock takeover agreed in 2023, the Houston-based company said. The purchases were made between January and March this year, and the stake is worth about US$2.3 billion at today’s share prices.
The purchases “reflect Chevron’s continuing confidence in the consummation of the pending acquisition of Hess”, the company said.
The long-running battle between Chevron and archrival ExxonMobil over Hess has captivated both the oil industry and merger-arbitrage traders looking to capitalise on the uncertain outcome of arbitration proceedings involving the two US supermajors. If Chevron wins, it gains a 30 per cent share of the world’s fastest-growing major oil project in Guyana, which is operated and 45-owned by ExxonMobil. But if it loses, the company stands to face questions over its legal judgment as well as its growth plans after 2030.
About six months after the deal was agreed, ExxonMobil began arbitration proceedings against Hess and Chevron, arguing it has a right of first refusal over the 30 per cent Guyana stake. Chevron claims the right does not apply in the case of a corporate merger. The case is scheduled to be heard in May with a decision by September.
Given Chevron’s current share price, the stock offer to Hess is worth more than US$160, while the Hess shares are trading for about US$150 a share, according to data compiled by Bloomberg. Factoring in the gap, as well as potential dividend payouts, purchasing shares now gives Chevron an opportunity to lower the cost of the transaction assuming it wins at arbitration and the spread diminishes.
Chevron’s purchases of Hess stock this year came in addition to regular buybacks of its own stock, the company said. Chevron bought back US$15.2 billion of stock last year, about 5 per cent of its market value, and plans to continue repurchasing shares after the Hess deal closes. BLOOMBERG
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