According to a letter from the activist investor on Wednesday, Elliott Investment Management has acquired a $1 billion stake in Phillips 66 and is vying for up to two board seats in an effort to boost the business’s performance.
Wednesday afternoon trading saw a more than 4% increase in Phillips 66’s shares. The market value of the crude refining company is close to $52 billion. David Faber of broke the story first.
Elliott is running for the board positions because Phillips hasn’t performed as well as rivals Marathon Petroleum and Valero. In the letter to the board of Phillips, the activist investor claimed that the company’s performance had decreased recently as a result of a change in emphasis away from its refining division.
Elliott partner John Pike and portfolio manager Mike Tomkins wrote, “Over the past three years, as Phillips 66 has fallen further and further behind, its stock has meaningfully underperformed these peers.”
While Marathon Petroleum has gained nearly 29% over the same period, Phillips shares have increased by roughly 13% so far this year. Despite being flat so far this year, Valero shares have gained 124% over the last three years compared to Phillips’ 88% gain.
“Shaking investor confidence in the company’s ability to run its refining operations efficiently,” according to the activist investor, is the result of Phillips’ recent sharp increase in operating expense per barrel.
Elliott supported CEO Mark Lashier’s strategy to raise the business’s output. By 2025, Lashier hopes to generate earnings before interest, taxes, depreciation, and amortization of $14 billion.
The CEO intends to achieve this by raising the company’s long-term capital return policy, selling $3 billion in noncore assets, and improving Phillips’ refining segment by more than $1 billion.
Elliott stated that if the company meets these objectives, Phillips 66’s stock could rise by 75% from its previous closing price of $118.
In a statement released on Wednesday, Lashier stated that the business has spoken with Elliott and is dedicated to operating in the best interests of its owners.
However, Elliott stated that considering Phillips’ track record of poor performance and investors’ doubts about the company’s chances of success this time, attaining Lashier’s objectives will call for supervision.
Elliott urged the appointment of two new directors with expertise in refining operations, arguing that their presence would improve the board considering the inexperience of the current members in this field.
“At this time, we think investors should support Mr. Lashier and the rest of the management team, provided they show significant progress toward these goals,” Elliott wrote.
However, the activist investor stated, “We think the Board needs to take a few actions to reassure investors that Phillips 66 is in the best possible position to realize its value-creation potential. At the same time, we find the market’s skepticism to be understandable.”
Elliott says Phillips 66 should follow Marathon’s recent transformation if it doesn’t make significant progress toward its goals in the upcoming year.
Under Elliott’s pressure, Marathon underwent a transformation that included appointing a new CEO.
