* Elliott supports Hess' five board nominees
* Elliott had earlier proposed a slate of five directors
* Three more incumbent Hess directors stepping down
* Board elects Mark Williams as chairman
By Michael Erman and Erwin Seba
NEW YORK/HOUSTON, May 16 (Reuters) - Hess Corp placed three directors backed by hedge fund Elliott Managementon its board on Thursday, settling a months-long feud over theoil company's governance and long-term strategy.
The agreement came hours before shareholders were set tovote on competing slates of directors at the Hess annualmeeting.
Since Elliott started making its case for change in January,Hess has announced plans to become a pure play exploration andproduction (E&P) company by selling or exiting a number ofbusinesses and stripping longtime chief executive John Hess ofhis role as chairman.
The board elected former Royal Dutch Shell Plc executive Mark Williams as chairman, passing over Hess'preferred candidate.
In exchange for the three board seats, Elliott supported theelection of five independent directors nominated by Hess.
Hess' new board will continue to have 14 directors, Hess andElliott said in a joint statement on Thursday. Three incumbentdirectors stepped down in order to make room for the Elliottdirectors, Hess said.
"We believe this is in the best interests of Hess," JohnHess said, speaking at the company's annual meeting in Houston."Hess' future has never been brighter."
The chief executive said that new directors do not presage achange in the company's latest growth plan announced in March,which focuses Hess on its E&P operations.
"It was pretty much universally accepted. We'll continue onthat execution," John Hess said.
Hess shares rose nearly 20 percent from the time Elliott'sstake was announced in January through Wednesday's close. Theywere down 2.4 percent at $68.91 on Thursday afternoon on the NewYork Stock Exchange.
CHANGING COMPANY
Elliott, which owns a 4.5 percent stake in Hess, has beenclamoring for change since January, when it launched a campaignto seat the new directors and pitched a plan to break up thecompany. The hedge fund railed against theincumbent board, alleging that directors were too closely tiedto Chairman and CEO John Hess and that poor oversight had led tounderperformance.
Hess Corp has since announced plans to sell or exit itsretail gasoline, marketing and trading businesses. It has alsoagreed to separate the chairman and chief executive roles andde-stagger its board.
Directors Samuel Bodman, Craig Matthews, and Ernst vonMetzsch are stepping down for the Elliott-nominated directors,bringing the number of incumbent directors who have left Hess' board this year to nine.
"This is a very qualified, deeply experienced, highlyindependent board. There is going to be a new era of oversightand accountability and we think that's going to portend greatreturns for shareholders," Elliott senior portfolio manager JohnPike said in an interview.
Elliott nominees Rodney Chase, Harvey Golub and DavidMcManus will join Hess' board. That is in addition to the fiveHess nominees: Williams, John Krenicki, Fredric Reynolds,William Schrader and Kevin Meyers.
Hess said last week that if its nominees were elected to theboard, former General Electric Co vice chairman Krenickiwould become chairman of the company. But the board turned toWilliams instead.
Two of the three Elliott directors will be appointed to afive-member nominating and corporate governance committee, andthe third will join the company's compensation committee.
"The independence of the board is a plus," said ArgusResearch analyst Phil Weiss. "Hess still has relatively highfamily ownership for a company of its size. With an independentdirector and other changes to the board, the role is somewhatdiminished as there are more checks and balances in place."
On Tuesday, in an attempt to settle the proxy contest,Elliott Management proposed that all of its nominees and allHess Corp nominees be part of a new board. A day earlier, thefund rejected Hess' offer of two board seats.
