Hess investors advised by Glass Lewis to back $53 billion Chevron acquisition

(Bloomberg) – Chevron Corp.’s $53 billion deal to buy Hess Corp. received a nod of support from a major proxy advisory firm that said shareholders should vote in favor of it.

Glass Lewis & Co. issued a report on Thursday saying that while some aspects of the merger are less than ideal, Hess shareholders will have the opportunity to participate in the potential future upside of the combined company through newly issued Chevron shares. The merits are “sound and reasonable,” it said.

The advice is at odds with a report issued Monday by another proxy advisory firm, Institutional Shareholder Services Inc. ISS said Hess shareholders should withhold their votes, citing concerns about the transaction’s valuation and uncertainty around the timeline of the arbitration case between Exxon Mobil Corp. and Chevron over a stake in a Guyanese oil project.

The conflicting recommendations are creating uncertainty over the outcome of what would be Chevron’s biggest deal in decades. The transaction still needs approval from the U.S. Federal Trade Commission, and must work through arbitration with Exxon that’s likely to last through at least the end of this year.

Chevron shares rose 0.4% Friday. Hess climbed 0.5%.

HBK Capital Management, Hess’ fifth-largest investor, has already said it agrees with ISS and plans to abstain when votes are cast May 28.

The driving force behind Chevron’s strategy to buy Hess is winning its 30% stake in a massive oil field offshore Guyana, the world’s largest and most profitable crude discovery of the past decade. Exxon owns 45% of the site and is the operator.

Exxon filed for arbitration in March to block Chevron’s takeover, saying it has a right of first refusal over Hess’s stake in the Stabroek Block offshore Guyana.

Chevron and Hess contend this right doesn’t apply in the case of a corporate merger. But investors are ultimately in the dark over the issue because the contract is private, ISS said.