A vehicle refuels at the Phillips 66 gas station on Monday, July 29, 2019 in Rockford, Illinois, United States.
Daniel Acker | Bloomberg | Getty Images
Company name: Phillips 66 (PSX)
work: phillips 66 is an energy manufacturing and logistics company. The company operates through the midstream, chemical, refining, marketing and specialty segments. The Midstream segment provides transportation and processing services for crude oil and refined petroleum products, as well as transportation, storage, separation, gathering, processing and marketing services for natural gas and natural gas liquids. The chemical division consists of Phillips 66’s 50% equity investment in Chevron Phillips Chemical (CPChem), which manufactures and sells petrochemicals and plastics worldwide. The Refining business refines crude oil and other feedstocks into petroleum products and renewable fuels, including gasoline, distillates and aviation fuel, at 12 refineries in the United States and Europe. Marketing and Specialization purchases and sells refined petroleum products and renewable fuels for resale.
stock market value: $57.06 billion ($129.70 per share)
Activist: Elliott Investment Management
Ownership percentage: Not applicable
Average cost: Not applicable
Activist comments: Elliott is a highly successful and intelligent activist investor. The company’s team includes analysts, engineers and business partners from leading technology private equity firms, as well as a former technology CEO and his COO. When evaluating investments, the company also employs professional and general management consultants, cost analysis experts, and industry experts. The firm often monitors companies for years before investing, and has a wide range of excellent board candidates. Elliott has focused on strategic activities in the technology sector and has achieved great success in doing so. However, in recent years, the company’s activity group has grown and evolved, and the company is taking longer-term activities and creating value at board level for a broader range of companies. The company’s activities are always well thought out and the detailed analysis presented here is proof of that.
what’s happening
behind the scenes
Activist investors like to claim that they are “friendly” or “constructive.” Although we do not generalize as such, it is difficult to imagine a friendlier or more constructive activist campaign than the one Elliott is proposing at Phillips 66.
Philips 66 companies are underperforming. valero energy and marathon oil They have increased by 45% and 191%, respectively, over the past three years, and by 163% and 248%, respectively, over the past 10 years. Elliott believes this is largely due to the company’s shift in focus away from the refining sector and management’s poor implementation of cost reductions, leading to a decline in investor confidence. .
Since being promoted to CEO in July 2022, Mark Lasher has refocused his efforts on refining, cut costs, and set a goal of achieving interim earnings before interest, taxes, depreciation and amortization of $14 billion by 2025. , has been working on strategic prospects such as selling $3. He will hold billions of non-core assets and strengthen the company’s long-term capital return policy. Elliott wholeheartedly agrees with this plan and thinks the stock price could reach him $205. The first part of your activist campaign to convince management that your plan is better than theirs is already done here.The only thing activists prefer over management agree with the activist’s plan is a management team with its own agenda that activists agree to.
But communicating your plan to the market and having investors believe you can execute it are two different things. There’s a lack of shareholder confidence here, and much of that can be attributed to the company’s 2019 AdvantEdge66 program aimed at cutting costs. When Phillips 66 was introduced, costs increased relative to peers and shareholders lost confidence in management’s ability to achieve goals. The first step in rebuilding trust in management is to add new directors to the board, especially at the request of shareholders. If those directors happen to have refining experience, investors would have even more confidence that management is refocusing on refining.
Elliott has extensive experience partnering with industry experts and has already identified candidates with relevant expertise here to fill two seats on the Board. Elliott is not seeking a seat on the board himself to discuss with management. The company is seeking two seats from two industry executives to ensure management is best positioned to execute its plans. Good activists use their seats on the board to help executives execute their plans, and they can also hold executives accountable when they fail to do so.
That’s where Elliott’s Plan B comes into play. If Phillips 66 adds two new board members with Elliott’s approval and still can’t meet next year’s performance goals, it will need to take the same path Marathon Petroleum took during its transformation. there will be. This includes making appropriate management changes, closing the current $2-3/bbl difference in refining EBITDA between Phillips 66 and Valero, and selling CPChem shares, European convenience stores and other non-core assets. This includes generating $15 billion to $20 billion. Part of the midstream stake that is not operational.
This should be an easy decision for the company, which expects to quickly appoint two new directors named by Mr. Elliott to its board of directors. Given the tone and content of Elliott’s lobbying, it would be very surprising and disappointing to see this come to a proxy fight. However, if that happens, we believe Mr. Elliott will be key to winning at least two board seats on the 13-member board, especially if he uses the universal proxy card.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.