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Activist hedge fund Elliott Management is increasing the pressure on oil refiner Phillips 66, kick-starting a proxy battle calling for “sweeping changes” at the US energy conglomerate.
In a letter to investors first seen by the Financial Times, Elliott is asking Phillip 66 investors to back its plan for the Houston-based refiner to divest assets, including its midstream arm, improve performance at its refining business and overhaul corporate governance.
In a proxy filing, submitted to regulators on Thursday, Elliott is nominating four directors — including Sigmund Cornelius and Brian Coffman, two former ConocoPhillips executives, from which Phillips 66 was carved out in 2012 — arguing they would deepen the board’s knowledge of the midstream and refining sector.
“At this point, it has become clear that sweeping changes are needed — changes to the company’s structure, its operations and its board,” Elliott said in the filing. Elliott ranks among Phillips 66’s top-five shareholders with a $2.5bn position, after upping its stake earlier this year.
Phillips 66 was formed in 2012 as a spin-off of refining, chemical and retail assets from the merger of Conoco and Phillips Petroleum Company. Its shares have fallen 38 per cent in the past year, compared to a 3.6 per cent rise in the S&P 500 index.
The company is expected to formally nominate four directors in the coming weeks, ahead of a May 21 vote. It is one of several energy stocks targeted by Elliott this year, including UK oil and gas major BP and German energy group RWE.
The filing marks an escalation in Elliott’s campaign against Phillips 66. Elliott has launched a formal proxy campaign on only two previous occasions against big US companies — against energy major Hess in 2013 and industrial parts maker Arconic in 2017. Last year, it also called a special meeting at air carrier Southwest Airlines. On each occasion, the companies settled before a vote took place.
Phillips 66 and Elliott did not immediately respond to requests for comment.
The list of Elliott nominees also include Michael Heim, the founder of midstream operator Targa Resources, and Stacy Nieuwoudt, a former energy analyst at hedge fund Citadel.
Elliott’s campaign against Phillips 66 has been one of its most contentious in recent memory. After first investing in Phillips 66 in 2023, Elliott more than doubled its stake to $2.5bn earlier this year, complaining the oil refiner failed to deliver on a promise to install two independent board directors. Bob Pease, a director previously backed by Elliott before it turned against him, criticised the hedge fund’s “inconsistent engagement” in a shareholder letter last week.
In its letter Elliott said: “Eighteen months ago, we were willing to give the company and its leaders a fair chance to restore Phillips 66 to best-in-class performance. We patiently supported them in their effort to do so. Unfortunately for investors, patience has been punished.”
Elliott said Phillips 66 chief executive Mark Lashier had “reportedly been denigrating the value of Phillips 66’s enviable assets and competitive positioning” by saying that Phillips 66 was “fairly valued”, according to analyst reports from an investor conference.
Shares in Phillips 66 stood at just over $107 on Thursday, giving it a market value of nearly $44bn. Its performance in recent years had lagged industry peers Valero Energy and Marathon Petroleum, Elliott noted.
Alongside pushing Phillips 66 to sell its midstream business, its European retail operations and its chemicals joint venture with Chevron, Elliott also wants to remove the company’s staggered board, meaning all 14 directors would be up for a vote each year. Elliott has also previously taken issue with Lashier’s combined role as chief executive and chair.
Lashier has previously acknowledged Phillips 66’s shares were undervalued — and he had a plan to boost performance. In a letter to investors last month the company said that it had taken “substantial action to deliver on our objectives”, including boosting total shareholder returns, undertaking $13.6bn of share buybacks and reducing refining costs by $1 a barrel.
In a blog post on Thursday, Mark DesJardine, an associate professor of strategy at Dartmouth College, criticised Phillip 66’s proposal to overhaul its staggered board. DesJardine said the requirement for a supermajority of shareholders meant putting the proposal to a vote was a “distraction tactic”.
https://www.ft.com/content/c976c37a-28e5-42dc-8347-eae8a0eeabb4
