Activist Investor Elliott Builds $2.5 Billion Stake In Phillips 66, Pressures For Midstream Spinoff: Report

Activist investor Elliott Investment Management has built a stake worth over $2.5 billion in Phillips 66, according to a report by The Wall Street Journal. Elliott plans to push for operational changes, including the potential sale or spin-off of the company's midstream business, to boost its stock price. Phillips 66's shares closed at $123.71 on Monday, down from $163.34 on March 28, 2024, just days after Elliott accepted the company's performance improvement plan.

Elliott, which disclosed a $1 billion stake in Phillips 66 in March 2024, has been seeking changes in several companies over the past year. Most recently, Elliott took a stake in BP's oil giant and boosted shares to their highest level since August during early trading on Monday. Honeywell was split into three independent listed companies last week after Elliott bought a $5 billion stake.

Phillips 66, an oil group organized into four divisions, reported record volumes for 2024 as it advances a wellhead-to-market strategy within its midstream business. The company's adjusted earnings loss of $61 million for fourth-quarter 2024 came amid a pre-tax depreciation for a refinery in Los Angeles, which affected earnings by $230 million. For the year, the company reported adjusted earnings of $2.4 billion or $6.15 per share.



Elliott's new stake in Phillips 66 is significantly larger than its previous investment in the company, and it reflects a consistent activist approach focused on operational changes, board changes, and simplification. This approach has been applied to other energy companies in which Elliott has invested, such as BP and Honeywell.

Given Phillips 66's recent performance and the current market conditions, Elliott might be targeting specific operational changes or improvements to boost the company's stock price. These could include:

1. Midstream Business Spin-off or Sale: Elliott plans to push Phillips 66 to sell or spin off its midstream business, which could help the company focus on its core refining and marketing operations, potentially leading to improved performance and increased shareholder value.
2. Cost-cutting and Efficiency Improvements: Elliott had asked Phillips 66 to add directors with refining experience to address underperformance in refining and speed up cost-cutting efforts. By improving operational efficiency and reducing costs, Phillips 66 could increase its profit margins and boost its stock price.
3. Asset Monetization: In October 2023, Phillips 66 announced plans to monetize over $3 billion of non-core assets. Elliott might be pushing for further asset monetization to generate cash, reduce debt, and improve the company's financial position.
4. Increased Shareholder Distributions: Phillips 66 raised its shareholder distributions target to a range of $13 billion to $15 billion. Elliott might be pushing for even higher distributions, such as increased dividends or share buybacks, to return more cash to shareholders and boost the stock price.
5. Strategic Acquisitions and Divestments: Elliott might be encouraging Phillips 66 to make strategic acquisitions or divestments to optimize its portfolio and improve overall performance.
6. Board Changes and Governance: Elliott believes that Phillips 66 has not yet fulfilled its commitment to further board changes. By pushing for improved governance and board composition, Elliott could help ensure that Phillips 66's management team is better equipped to drive shareholder value.

These operational changes and improvements could help Phillips 66 boost its stock price by enhancing its financial performance, improving operational efficiency, and increasing shareholder distributions. By targeting these areas, Elliott can help Phillips 66 create more value for its shareholders.