Phillips 66: Defending Value Against Activist Short-Termism in the Proxy Battle

The proxy battle between Phillips 66 (PSX) and Elliott Management is a defining clash between long-term strategic value and activist-driven short-termism. As shareholders prepare to vote on May 21, 2025, the stakes could not be higher: Elliott’s push to break up the integrated energy giant risks undermining its operational synergies, exposing it to costly tax leakage, and creating governance instability. Here’s why voting against Elliott’s nominees is a must for investors focused on sustained returns.

The Breakup Thesis: A House Built on Sand

Elliott’s proposal to spin off Phillips 66’s Midstream business and sell its Chemicals Partners (CPChem) division hinges on a valuation premise that crumbles under scrutiny. Let’s dissect the risks:

1. Tax Leakage: A $28/Share Hidden Cost
   Elliott claims a Midstream spinoff would unlock $50 billion in value. Phillips 66 counters that tax leakage—due to IRS rules on intercompany transactions—could erode this figure by up to $28 per share. Analysts at Citi and Goldman Sachs concur, noting buyers would demand steep discounts to absorb these risks. A standalone Midstream entity would also lose synergies with Phillips 66’s refining operations, reducing margins by up to 15%, as highlighted in the company’s recent investor presentation.

1. CPChem: Overvalued and Prematurely Sold
   Elliott’s $15 billion valuation for CPChem ignores a harsh reality: chemical sector valuations have dropped 19% since 2023, while CPChem’s two major projects (expected online by 2026) will significantly boost its EBITDA. Selling now would sacrifice upside, locking in subpar returns. TD Cowen analysts estimate CPChem’s fair value post-2026 completion at $18–20 billion, making Elliott’s thesis a race to the bottom.

Why Phillips 66’s Integrated Model Wins

The company’s defense is built on three pillars of long-term strength:

1. Operational Synergies: The Invisible Profit Engine
   Phillips 66’s refining, midstream, and chemical operations are interconnected. For example, its Midstream assets provide discounted feedstock to refineries, while chemicals divisions leverage refining byproducts. Breaking this model would cost $315 million annually in lost synergies alone (based on $0.50/barrel savings on 630,000 barrels/day capacity).

2. Financial Outperformance: Data Over Dogma
   Since 2023, PSX has delivered 67% total shareholder returns, trouncing the S&P 500 Energy Index (45%) and peer averages (42%). Dividend growth has averaged 15% CAGR since its 2012 spinoff, with $14 billion returned to shareholders via buybacks and dividends. These metrics are no accident—Phillips 66’s refining margins outperformed global peers by $2.80/barrel in 2024, per its Q4 earnings report.

3. Governance Integrity: No Room for Hypocrisy
   Elliott’s proposed “annual resignation policy” is a legal minefield. A Delaware law firm advising Phillips 66 confirms the policy violates state corporate law by mandating director resignations without an 80% shareholder vote—a “breach of fiduciary duty waiting to happen.” Meanwhile, Elliott’s ties to Amber Energy (a CITGO bidder) and Gregory Goff—a Phillips 66 shareholder with undisclosed financial ties—create a glaring conflict of interest. Shareholders voting for Elliott’s nominees risk empowering a board that prioritizes activism over accountability.

The Legal and Voting Reality Check

• Proxy Advisors: ISS Supports Elliott, But Glass Lewis?
  While ISS’s recommendation for Elliott’s nominees is a setback, Glass Lewis’s mixed stance (supporting three nominees but opposing one over independence concerns) underscores uncertainty. Investors must look beyond proxies to the facts: Elliott’s nominees lack energy-sector expertise, while Phillips 66’s board includes five new independent directors since 2021, plus seasoned veterans like John Lowe (former Marathon CEO) and Nigel Hearne (international upstream/downstream leader).

• Voting Mechanics: Act Now or Regret Later
  Shareholders must vote FOR Phillips 66’s four nominees (via the WHITE proxy card) and AGAINST Elliott’s annual resignation proposal. Discard any “Gold proxy materials” from Elliott, as only the latest vote counts. The deadline is May 20—waiting means losing control.

Conclusion: Vote with Your Wallet—Protect PSX’s Long-Term Value

Elliott’s breakup thesis is a high-risk gamble that ignores tax realities, operational synergies, and governance risks. Phillips 66’s integrated model, proven performance, and legally defensible strategy offer a clear path to sustained returns. Voting against Elliott’s nominees isn’t just about preserving value—it’s about rejecting the cult of short-termism in favor of a company that’s already delivering results. Act now before it’s too late.

Data shows PSX’s refining margins outperformed peers by 15% in 2024, reflecting operational excellence.

Investment Call to Action:
- Vote FOR PSX’s board nominees (WHITE proxy).
- Reject Elliott’s proposals.
- Hold PSX: Its valuation multiples (P/E of 8.5 vs. sector average of 12) and dividend yield (5.2%) offer asymmetric upside.

The future of Phillips 66 hangs in the balance. Choose long-term value—vote wisely.