Oil and gas company Hess Corp (HES.N) will exit its retail, energy marketing and energy trading businesses following pressure from its third-largest shareholder — activist investor Elliott Management — to break up the company.
The company, with a market capitalization of about $23 billion, also said it would buy back up to $4 billion of its stock and increase its annual dividend to $1 from 40 cents, beginning July.
Hess shares rose 5 percent before the bell.
Hedge fund Elliott Management in January asked the company, which is looking to become a predominantly exploration and production company, to consider a spinoff of its U.S. onshore assets and the sale of its retail operations.
Paul Singer's Elliott, which has a 4 percent stake, also plans to nominate five directors at the annual meeting in May.
Hess on Monday rejected Elliott's proposed board members, and said the investor's recommendation to split the exploration and production business into U.S. onshore and offshore operations, and separate its midstream business ignored credit risk and tax consequences.
"Elliott's platform is predicated almost entirely on Singer's naive assumption that separating our U.S. assets into a stand alone company will create value. It won't," Hess said in a letter to shareholders, naming six independent directors.
The company's shares are likely to outperform only modestly today, because much of this has been priced in since Elliott's January letter, said Raymond James analyst Pavel Molchanov.
Molchanov said Occidental Petroleum Corp (OXY.N) could become a similar "breakup value" story by separating its substantial chemical, midstream segments from its exploration and production portfolio.
Activists, including Carl Icahn and some high-profile hedge funds, are clamoring for change from the management of energy companies such as Transocean Ltd (RIG.N), Nabors Industries Ltd (NBR.N), Chesapeake Energy Corp (CHK.N) and SandRidge Energy Inc. (SD.N)
Hess has been looking to sell non-core assets - including an exit from the refining business - and pour more than 90 percent of its capital into exploration and production.
ConocoPhillips (COP.N), Marathon Oil Corp (MRO.N) and Murphy Oil (MUR.N) have all separated their refining operations to create additional value.
Hess on Monday also said it would prune its Asian portfolio by divesting operations in Indonesia and Thailand to focus on the North Malay basin and a joint development area in Malaysia and Thailand.
The company is pursuing monetization of its oil and gas gathering and transportation assets in North Dakota's Bakken shale field, expected in 2015.
Hess will use proceeds from the asset sales to pay down short-term debt. The company had short-term debt of $787 million as of December31, according to Thomson Reuters data.
The company's marketing operations, which consist mainly of retail gasoline and energy marketing activities, generated earnings of $209 million in 2012. The company's net income for the year was $2.25 billion.
Hess operates terminals and retail gasoline stations, most of which include convenience stores, that are located on the East Coast of the United States.
It sells refined petroleum products, natural gas and electricity to commercial and industrial businesses through its energy marketing activities.
The company's energy trading business is a New York-based joint venture known commonly as Hetco, in which Hess holds a 50 percent stake. Two top Goldman Sachs (GS.N) traders hold the remaining stake.
Hess will retain operations in North Dakota's Bakken shale field, Ohio's Utica Shale, Valhall Field in the North Sea, the Tubular Bells field in the Gulf of Mexico and Malaysia's North Malay Basin.
The company's shares closed at $66.54 on the New York Stock Exchange on Friday.