Wed. Feb 28th, 2024

Elliott Funding Administration has taken a $1 billion stake in Phillips 66 and is in search of as many as two board seats in a push to enhance the corporate’s efficiency, based on a Wednesday letter from the activist investor.

Phillips 66’s inventory rose greater than 4% in afternoon buying and selling Wednesday. The crude refining firm has a market cap of practically $52 billion. CNBC’s David Faber initially broke the information.

Elliott’s push for the board seats comes as Phillips has underperformed its opponents Marathon Petroleum and Valero. The activist investor stated within the letter to Phillips’ board that the corporate’s efficiency has declined in recent times as a result of it has shifted its focus away from its refining phase.

“Over the previous three years, as Phillips 66 has fallen additional and additional behind, its inventory has meaningfully underperformed these friends,” wrote Elliott accomplice John Pike and portfolio supervisor Mike Tomkins within the letter.

Phillips shares are up about 13% 12 months so far, whereas Marathon Petroleum has gained practically 29% over the identical interval. Valero shares are flat 12 months so far, however are up 124% over the previous three years versus Phillips’ 88% acquire.

The activist investor stated Phillips’ working expense per barrel has soared in recent times, “shaking investor confidence within the firm’s capability to run its refining operations effectively.”

Elliott backed CEO Mark Lashier’s plan to enhance the corporate’s efficiency. Lashier is focusing on $14 billion in earnings earlier than curiosity, taxes, depreciation and amortization by 2025.

The CEO plans to do that by a greater than $1 billion enchancment in Phillips’ refining phase, promoting $3 billion in noncore belongings and growing the corporate’s long-term capital return coverage.

Elliott stated Phillips 66’s inventory has an upside of 75% from its final closing worth of $118 if the corporate executes on these targets.

Lashier stated in an announcement Wednesday that the corporate has engaged in discussions with Elliott and is dedicated to appearing in the very best curiosity of shareholders.

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Phillips 66 shares 12 months so far

However Elliott stated attaining Lashier’s targets would require oversight given Phillips’ historical past of failed execution and investor skepticism that the corporate will succeed this time.

Elliott referred to as for 2 new administrators with expertise in refining operations, contending they might improve the board given present members’ restricted expertise on this phase.

“At current, we consider Mr. Lashier and the remainder of the administration group deserve investor assist as long as they reveal significant progress in opposition to these targets,” Elliott wrote.

“On the similar time, we discover the market’s skepticism to be comprehensible, and we consider the Board should take a number of steps to reassure buyers that Phillips 66 is in the very best place to attain its value-creation potential,” the activist investor wrote.

Ought to Phillips 66 fail to make actual progress towards its targets over the following 12 months, the corporate ought to pursue a path that mirrors Marathon’s current transformation, based on Elliott.

Marathon’s transformation beneath Elliott’s strain included transitioning to a brand new CEO.

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