Phillips 66’s Proxy Battle with Elliott: A Fight for Control or a Path to Value?

Nathaniel StoneWednesday, Apr 30, 2025 6:30 pm ET
39min read

The energy sector’s latest high-stakes showdown is unfolding at Phillips 66 (NYSE: PSX), where CEO Mark Lashier’s leadership faces a direct challenge from activist investor Elliott Management. The proxy fight, centered on corporate governance and strategic direction, has reignited debates about value creation, board independence, and the role of activist investors. With billions at stake, shareholders must decide whether to side with Phillips 66’s experienced board or Elliott’s push for dramatic restructuring.

The Conflict Unfolds: Governance vs. Disruption

Elliott Management, a top-five shareholder with over $2.5 billion invested, has launched a campaign to replace four of Phillips 66’s 12 board members. Their “Streamline 66” plan argues that the company’s underperformance—marked by a 77% drop in Q1 2025 adjusted EBITDA and a stock price lagging peers like Valero (VLO) and Marathon Petroleum (MPC)—demands radical change. Elliott’s nominees include figures with midstream and refining expertise, framed as a corrective to Phillips 66’s alleged governance failures.

Phillips 66 has countered fiercely, defending its board’s 230+ years of collective industry experience and its track record of value creation. CEO Lashier’s tenure since 2022 has seen $3.5 billion in asset sales, a near-doubling of midstream adjusted EBITDA since 2021, and $13.6 billion returned to shareholders via dividends and buybacks. The company’s letter to shareholders emphasized that Elliott’s nominees lack proven track records and have ties to failed ventures, while its own slate includes leaders behind major industry transactions like the DowDuPont spin-off.

Key Financial and Strategic Dynamics

MPC, PSX, VLO Closing Price
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  • Profitability Pressures: Phillips 66’s Q1 2025 adjusted net loss of $368 million highlights challenges in refining margins and commodity volatility. Meanwhile, its dividend hike to $4.80 annually (4.5% yield) contrasts with cash flow struggles, raising questions about sustainability.
  • Dividend History: Despite recent dips, Phillips 66 has maintained a 15% CAGR in dividends since 2012, outperforming the S&P 500 Energy Index over the long term.
  • Elliott’s Conflict of Interest Allegations: Phillips 66 accuses Elliott of a glaring conflict, noting its simultaneous $10 billion bid for CITGO—a direct competitor—via wholly owned subsidiary Amber Energy. This, they argue, undermines Elliott’s credibility and independence.

The Risks and Opportunities

For Elliott’s Vision:
- Breakup Potential: A victory could force Phillips 66 to spin off assets or simplify its portfolio, potentially unlocking $5–$10 billion in undervalued equity.
- Cost Cuts: Elliott’s focus on operational efficiency might reduce capital expenditures and prioritize high-margin projects, boosting margins.

For Phillips 66’s Defense:
- Experience Over Chaos: The board’s deep industry expertise could better navigate energy market cycles, avoiding the “short-termism” Elliott is accused of.
- Legal Safeguards: Phillips 66 has pushed for lawful declassification of its board (Proposal 2), framing Elliott’s alternative as a violation of Delaware corporate law.

Shareholder Considerations

  • Proxy Voting: The May 21, 2025, annual meeting will decide the outcome. Voting FOR Phillips 66’s nominees (WHITE proxy card) supports continuity, while GOLD (Elliott’s) backs restructuring.
  • Valuation Uncertainty: Phillips 66’s stock trades at ~$105.72, below its 2024 peak but with a dividend yield above historical averages. Elliott’s implied target of $120.91 hinges on governance reforms.
  • Litigation Risks: Elliott’s CITGO bid could face regulatory hurdles, complicating its narrative of “unbiased” advocacy.

Conclusion: A Crossroads for Value

The Phillips 66-Elliott battle is a microcosm of broader debates in corporate governance: Should companies prioritize activist-driven disruption or trust proven leadership? Data favors both sides:

  • Elliott’s Case: Phillips 66’s underperformance vs. peers (TSR lagging by ~20% over five years) and weak Q1 results justify skepticism. Elliott’s focus on simplification and cost discipline aligns with energy sector trends toward agility.
  • Phillips 66’s Defense: Its dividends, asset sales, and midstream growth (adjusted EBITDA nearly doubled since 2021) suggest a strategy that works over time. The CITGO conflict, if proven, could undermine Elliott’s credibility.

Investors should weigh these factors carefully. A Phillips 66 victory might mean more of the same—steady dividends and gradual growth—but risks missing a transformative opportunity. An Elliott win could deliver short-term gains but introduces execution risks and legal battles. For now, the stock’s elevated dividend yield (4.5%) and Elliott’s valuation target provide a floor, but the ultimate decision hinges on whether shareholders believe in evolution or revolution.

In the end, this proxy fight isn’t just about board seats—it’s about whether Phillips 66 can adapt its legacy infrastructure to a changing energy landscape without sacrificing its hard-won shareholder returns. The May vote will reveal which path investors prefer.