Activist investor Elliott Investment Management has revealed that it has acquired a $1 billion stake in Phillips 66, according to a letter addressed to the refiner's board. The news has resulted in a 3.5% increase in Phillips 66 stock, which is currently trading at $122.09 in premarket trading. This year alone, the stock has experienced a 17% surge.
In the letter, Elliott Investment Management points out the reasons behind the stock's underperformance and suggests that with improvements, it has the potential to reach over $200, an impressive 75% increase from its current price. Phillips 66 has not yet responded to requests for comment regarding Elliott's investment or the letter.
Although initially regarded as "a well-run and high-performing company" after its spin-off from ConocoPhillips in 2012, Phillips 66 has fallen behind competitors Valero Energy and Marathon Petroleum over the past three years. This is mainly due to its underperformance in Refining and poor execution of cost-reduction efforts.
To rectify this situation, Elliott Investment Management advises Phillips 66 to appoint two new directors to the board who have experience in refining operations. The activist investor expresses hope that the existing management team, with additional support from an enhanced Board, can meet their performance targets and achieve significant stock-price outperformance.
However, if Phillips 66 fails to demonstrate significant progress towards its 2025 targets within the next year, Elliott Investment Management believes that the company should pursue its best available option by adopting a strategic pivot similar to Marathon's recent transformation. Elliott and other activists successfully drove Marathon's revamp, which involved the appointment of a new CEO and the divestment of a business segment.
