Exxon Under Pressure From New Activist Fund
07 Décembre 2020 - 4:29AM
Dow Jones News
By Cara Lombardo and David Benoit
Exxon Mobil Corp. is facing the threat of a proxy fight from a
newcomer activist investor with a sustainability bent that wants
the beleaguered energy giant to act faster to remake itself.
Engine No. 1 LLC, an investment firm launched by Chris James
last week, is preparing to send a letter to Exxon's board urging
the Irving, Texas-based company to focus more on investments in
clean energy while cutting costs elsewhere to preserve its
dividend. The letter, a copy of which was viewed by The Wall Street
Journal, identifies four people the firm plans to nominate to
Exxon's 10-person board.
The San Francisco firm has the support of California State
Teachers' Retirement System, the big pension investor, and expects
other shareholders to be sympathetic to the cause, given widespread
frustration over Exxon's share performance, a person familiar with
the matter said. Calstrs holds a more than $300 million Exxon
stake, while Engine No. 1 has one worth around $40 million, this
person said.
Their combined ownership is smaller than what is typical for an
activist taking on a company of Exxon's size, and it is possible
the campaign will fall flat. Still, Calstrs holds sway as the
country's second-largest pension fund and there have been instances
of well-timed campaigns led by small shareholders gaining traction
with other investors and yielding results.
"Without having seen the letter, we will decline to comment,"
said Casey Norton, an Exxon spokesman.
Key to the outcome will be the reaction from larger
shareholders, especially Vanguard Group, BlackRock Inc. and State
Street Corp., which together control nearly 20% of Exxon's shares.
BlackRock and State Street are part of Climate Action 100+, an
investor group that pushes for companies to take swifter action to
combat climate change. BlackRock, in particular, has a history of
singling out Exxon for not moving quickly enough to address climate
risks, and it cited those concerns earlier this year when it voted
against two Exxon directors and in favor of separating the chairman
and CEO roles. The directors were elected and the roles weren't
separated.
Exxon, which just seven years ago was America's most valuable
company, today has a market value of around $176 billion after the
pandemic crushed demand for fossil fuels and laid bare prior
strategic missteps. With its shares down 40% so far this year,
there has been speculation Exxon could attract an activist investor
seeking to harness frustration among shareholders.
Engine No. 1's letter calls on Exxon to make four primary
changes: 1) add independent directors with diversified
energy-industry experience; 2) reduce capital expenditures,
particularly on projects that are unlikely to break even with
sustained low oil and gas prices; 3) formulate a plan to invest in
growth areas such as renewable energy; and 4) realign management
incentives.
"We believe that for ExxonMobil to avoid the fate of other
once-iconic American companies, it must better position itself for
long-term, sustainable value creation," the firm writes.
Engine No. 1 launched with $250 million under management and
primarily manages Mr. James' own fortune from technology investing.
Its focus is on so-called impact investing, which seeks to push
companies to make changes that are beneficial in the long run to
stakeholders such as workers and shareholders alike.
Its team includes Charlie Penner, a former partner at activist
hedge fund Jana Partners LLC, where he helped run campaigns at
companies including Whole Foods Market. He also led Jana's
successful joint effort with Calstrs in 2018 to push Apple Inc. to
add features to help parents limit their children's screen
time.
Companies of all kinds are facing pressure to reduce their
impact on the environment. As rivals such as BP PLC and Royal Dutch
Shell PLC have begun investing in renewable energy -- a strategy
that their investors haven't rewarded so far -- Exxon was seen as
somewhat of a holdout, with Chief Executive Darren Woods vowing
instead to spend more on oil exploration to increase
production.
But recently Exxon has been taking actions to address
shareholder concerns. Last week, it retreated from Mr. Woods'
ambitious plan and said it would cut billions of dollars from its
capital spending every year through 2025 and focus on investing in
only the most promising assets. It also signaled it planned to take
a write-down of as much as $20 billion on the value of natural-gas
assets -- a move it had long resisted -- mostly stemming from the
disastrous purchase of XTO Energy Inc. a decade ago.
Mr. Woods said the moves would help the company focus on
improving earnings and strengthening its balance sheet to maintain
the dividend. The dividend currently yields a whopping 9% and costs
the company about $15 billion a year.
Exxon shares have risen about 9% since the announcement.
The window to officially nominate directors to Exxon's board
doesn't open until later this month, and Engine No. 1 says in the
letter it hopes Exxon will consider its nominees before that:
Gregory Goff, the former CEO of refiner Andeavor, which was sold to
Marathon Petroleum Corp.; Kaisa Hietala, who previously led the
renewables business of Finnish refiner Neste Oyj; Alexander
Karsner, an executive of Alphabet Inc.'s innovation lab who served
in the Energy Department under President George W. Bush; and Anders
Runevad, former CEO of Vestas Wind Systems AS.
--Christopher M. Matthews contributed to this article.
Write to Cara Lombardo at cara.lombardo@wsj.com and David Benoit
at david.benoit@wsj.com
(END) Dow Jones Newswires
December 06, 2020 22:14 ET (03:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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