Little Engine No. 1 beat Exxon with just $12.5 million – sources

6:45 pm Tuesday, June 29th, 2021

By Svea Herbst-Bayliss

BOSTON (Reuters) – Activist investor Engine No. 1 spent roughly $12.5 million to win three board seats at Exxon Mobil Corp, less than half its original budget, for the year’s biggest and most closely watched corporate contest, people familiar with the number said.

Engine No. 1 in May shocked the oil-and-gas industry when Exxon shareholders, frustrated by weak returns and the U.S. leader’s flagging attention to climate concerns, elected three of its four nominated directors to Exxon’s board. Investors said the fund’s small budget could become a template for low-cost proxy contests.

The victory against one of America’s most iconic companies is even more impressive considering Exxon’s market valuation of $265 billion, industry analysts said.

Exxon had said it planned to spend $35 million more than its usual proxy solicitation costs, but did not specify a figure. Its campaign included a website, Twitter posts, blogs, and employee forums, mailings, and television appearances. Industry experts speculated that Exxon’s costs could have topped $100 million.

“Our costs for the proxy contest remain in line with our filed estimates. We reject any speculation of excessive costs,” an Exxon spokesman said on Tuesday.

Engine No. 1 declined to comment.

Engine No. 1, launched in December with roughly $250 million in assets, concentrated heavily on electronic communications instead of more expensive mailings sent by post, people familiar with the costs said. Since the firm disclosed its initial $40 million investment on Dec. 7, it has earned a return of 20% net of fees through Tuesday on the Exxon bet, a person familiar with the number said.

The investment firm also focused more on persuading big institutions to back its criticisms that Exxon lacked a convincing clean energy strategy and lagged on financial returns and focused less on pulling in retail investors, who are often inclined to back management.

COVID-19 prevented both sides from jetting around the world to make their case in person, helping reduce costs, people said. For Engine No. 1, the restrictions allowed its nominees to spend hours on video calls with large investors.

That strategy may not be replicable, investors said, if travel resumes and institutions insist on seeing executives and investment managers in person.

Engine No. 1 pressed the credentials of its board candidates, including the former executive vice chairman ofMarathon Petroleum Corp and the renewable fuels chief atFinnish refiner Neste Oyj. It also steered clear of going negative, something institutional investors often dislike, experts said.

(Reporting by Svea Herbst-Bayliss; Editing by Richard Chang)