(CTN News) – According to a letter from the activist investor, Elliott Investment Management has acquired a $1 billion stake in Phillips 66 and is now aiming to secure up to two board seats in order to enhance the company’s performance.
This development has resulted in a more than 4% increase in Phillips 66’s stock during Wednesday’s afternoon trading session.
With a market capitalization of nearly $52 billion, Phillips 66 has struggled to keep up with its competitors Marathon Petroleum and Valero, prompting Elliott to express concerns about the company’s declining performance.
In their letter to Phillips’ board, Elliott partner John Pike and portfolio manager Mike Tomkins highlighted that the company’s focus on its refining segment has shifted in recent years, leading to a significant underperformance of its stock compared to its peers.
Phillips’ stocks have experienced a 13% increase year to date, while Marathon Petroleum has seen a significant gain of nearly 29% during the same period. On the other hand, Valero’s shares have remained unchanged so far this year, but have surged by an impressive 124% over the past three years, surpassing Phillips’ 88% growth.
According to the activist investor, Phillips’ operating expense per barrel has significantly risen in recent years, which has caused doubts among investors regarding the company’s ability to efficiently manage its refining operations.
Elliott, the activist investor, supports CEO Mark Lashier’s strategy to enhance the company’s performance. Lashier aims to achieve $14 billion in earnings before interest, taxes, depreciation, and amortization by 2025.
The CEO plans to improve the company by investing $1 billion in refining, selling $3 billion in non-core assets, and improving the capital return policy.
If successful, this could increase the stock price by 75%. The CEO is committed to prioritizing shareholders’ interests and has been in discussions with Elliott.
However, Elliott emphasized that in order to achieve Lashier’s goals, it is necessary to have oversight due to Phillips’ history of failed execution and investor skepticism. Therefore, Elliott proposed the addition of two new directors who have experience in refining operations.
This is because the current board members have limited experience in this segment and the new directors would enhance the board’s capabilities.
Elliott also stated that they believe Mr. Lashier and the management team deserve investor support as long as they show significant progress toward their targets.
However, they acknowledge the market’s skepticism and believe that the Board needs to take several steps to reassure investors about Phillips 66’s potential for value creation.