There is a new activist on the block, and it has already come knocking on Exxon Mobil’s door.
Early Monday, newly launched investment firm Engine No. 1 LLC sent a letter to Exxon Mobil (ticker: XOM) declaring its intent to nominate four directors to the oil and gas company’s board. The firm was founded last week by Chris James, a tech investor who also founded Partner Fund Management. Charlie Penner, a former partner of JANA Partners, is also part of the firm.
Yet while Engine No. 1 is only in its first week, it quickly won a powerful ally: The California State Teachers’ Retirement System, which holds more than $300 million of Exxon shares, announced its support of Engine No. 1’s slate.
An Exxon spokesman acknowledged receiving Engine No. 1’s letter and said it is reviewing it.
The move on Exxon Mobil comes as its shares are down more than 40% this year, and while some of the drop can be attributed to weakness in oil prices, Exxon has also lagged behind peers. The Energy Select Sector SPDR Fund (XLE) is down 32% for the year.
Exxon announced last week that it was writing down up to $20 billion of its natural gas assets. It also said that it plans to reduce capital spending through 2025 and pushed out its goal to double profits by 2025 by two years to 2027. The moves were done in part to maintain Exxon’s dividend, which hasn’t been covered by cash flow. Exxon recently kept its dividend steady at 87 cents per quarter, the first time it failed to raise it since 1982—another cause for investor discontent.
Exxon shares, which yield 8.5%, fell 1.9% in Monday’s trading. The S&P 500 lost 0.2%.
It’s too early to tell if Engine No. 1 will be successful. Along with the shares held by Calstrs, they hold just over $340 million of Exxon’s shares, according to the Wall Street Journal, which earlier reported news of the activist investment. Meanwhile, Exxon has a market cap of $173 billion. But while the activists’ stake isn’t large, there have been rumblings of investor discontent for some time.
In addition to changes at the board, Engine No. 1 has other ideas for Exxon, which was dropped from the Dow Jones Industrial Average in August. It wants Exxon to cut back on its aggressive spending on areas where returns are declining. Even though Engine No. 1 acknowledged Exxon’s plans to cut capital spending, the firm said the plans may not go far enough.
Engine No. 1 also wants Exxon to invest more in renewable energy and better align management compensation with creating shareholder value.
“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 wrote Monday. “We believe, however, that given the Company’s long-running underperformance and the challenges it faces, it is time for shareholders to weigh in.”
Write to Carleton English at carleton.english@dowjones.com
https://www.barrons.com/articles/exxon-mobil-draws-activist-attention-engine-no-1-calls-for-new-directors-strategic-change-51607378401
2020-12-07 22:00:00Z
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