Elliott Management Buys $1 Billion Stake in Phillips 66, Pushes for Board Changes

Hedge fund urges company to revamp board and boost refining operations

by Victor Adetimilehin

Elliott Management, one of the world’s largest activist hedge funds, has acquired a $1 billion stake in Phillips 66, the US oil refiner and pipeline operator, and is urging the company to revamp its board and improve its performance.

In a letter to the board of Phillips 66, Elliott said the company’s stock, which was trading around $118 per share on Wednesday, could reach $200 with the right changes. Elliott praised the company’s management for setting sensible targets, but said it needed more help to achieve its full potential.

Elliott criticized Phillips 66’s refining operations, saying the company had taken its “eye off the ball” by letting operating expenses soar. Elliott also said investors had lost confidence in the company due to its “underperformance in refining, as well as poor execution on its cost-reduction efforts”.

Elliott proposed that the company appoint two new directors with refining-operating experience to the board, which it said had limited expertise in that area. Elliott said it had identified suitable candidates who could enhance the board’s oversight and accountability.

Phillips 66 said it welcomed Elliott’s perspectives and planned to continue a constructive dialogue with the hedge fund. The company said it believed it had “the right management team and board in place to deliver long-term, sustainable value”.

Phillips 66, which has a market value of $52 billion, is the largest US refiner by capacity, with 13 refineries and a network of pipelines and terminals. The company also has a joint venture with Chevron to produce petrochemicals.

However, Phillips 66 has lagged behind its peers in terms of profitability and share price performance. The company’s second-quarter earnings missed analysts’ expectations, but the company outlined a plan to boost returns by cutting costs and selling or spinning off some assets.

Elliott’s move comes amid a wave of activism in the energy sector, as investors pressure companies to improve their environmental, social and governance (ESG) practices, as well as their financial performance. Earlier this year, Engine No. 1 won three board seats at Exxon Mobil after a campaign that highlighted the oil giant’s failure to adapt to a low-carbon future.

Elliott, which manages about $40 billion in assets, has a history of targeting underperforming companies and pushing for changes in strategy, governance and capital allocation. The hedge fund has recently launched campaigns against AT&T, Crown Castle, SoftBank and Twitter, among others.

Elliott said it was confident that Phillips 66 could become a leader in the energy transition, as well as a top performer in the refining industry, with the right board and management support. Elliott said it looked forward to working with the company to achieve these goals.

Source: Reuters

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