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Elliott Management still knows how to play tough. The seemingly ubiquitous activist investor is poised to take four board seats at Phillips 66 at the US energy company’s annual meeting next week. After a few cases where Elliott was welcomed almost with open arms by companies it targeted, this new battle is the bloodiest corporate America has seen in a some time.
Elliott insists it tried a co-operative approach at Phillips after it first took a stake in 2023. The fearsome fund, with more than $70bn of assets under management, says honey rather than vinegar is its preferred approach these days. That proved true at industrial conglomerate Honeywell, where Elliott secured wins without much acrimony. A parallel fight at UK oil major BP remains in its early stages.
At Phillips 66, the tone is less friendly. Nonetheless, Elliott’s campaign includes the claim that a break-up could theoretically lead to a “sum-of-the-parts” valuation that boosts the company’s current $70bn enterprise value by a third and its equity value even more.
Phillips 66’s management, led by Mark Lashier, presents Elliott as a bunch of spreadsheet jockeys who fail to understand its ‘integrated’ model, one where oil refining — a volatile but intermittently lucrative activity — sits synergistically alongside a steadier pipeline business as well as petrochemicals and petrol stations. The incumbent board argues a new-ish CEO, three years into his tenure, will be vindicated.
But it’s hard to counter Elliott’s most basic point: In the past five years, a dollar invested in each of Phillips 66’s main rivals Valero and Marathon would have doubled and quintupled, respectively. At Phillips 66, it would have turned into less than 80 cents. Marathon agreed to put Elliott nominees on its board in 2019, later divesting its retail gas station business for $21bn.
At Phillips 66, Elliott isn’t just prescribing a break-up. It also argues that poor execution has harmed the company’s profitability. In that respect, it’s Phillip’s corporate governance that has been scrutinised and ultimately pilloried by Elliott.
Lashier is both chief executive and chair; only a third of the company’s directors come up for re-election each year, a shareholder-unfriendly arrangement known as a staggered or classified board. The company, for its part, is now offering some concessions here — though the big shareholder advisory firms ISS and Glass Lewis have recently backed Elliott’s vision and its directors.
The art of activism is to make a big noise with a small stake — in this case, $2.5bn worth of exposure. To date, Elliott has never waged a US proxy campaign that made it to an actual shareholder vote. That’s because it is powerful enough to elicit compromises, and prudent enough to take them. One way or another, once again, Elliott is likely to get what it wants.
