Unlocking Trapped Value at Phillips 66: Elliott’s Bold Vision and the Case for Structural Change

Elliott Investment Management’s “Streamline 66” podcast series has once again turned up the heat on Phillips 66 (PSX), this time with an in-depth conversation featuring Sigmund Cornelius, one of four independent director nominees vying for a seat on the company’s board. The fourth episode, released on April 25, 2025, crystallizes Cornelius’s core argument: Phillips 66’s assets are undervalued due to a flawed corporate structure that conflates refining, midstream, and chemical operations. Drawing on his 30-year career at ConocoPhillips—where he oversaw a transformative $20 billion divestiture program—Cornelius makes a compelling case for splitting Phillips 66’s business units to unlock shareholder value. Here’s why investors should take notice.

The Conglomerate Discount Problem

Cornelius’s critique centers on the “conglomerate discount” plaguing Phillips 66. By combining low-margin refining with higher-multiple midstream and chemical assets, the company’s hybrid model confuses investors. The market cannot properly value each segment, leading to a persistent undervaluation. Consider this: refining typically trades at 5–7x EBITDA, while midstream and chemicals command 10–15x. When merged, the blended multiple drags the entire enterprise down.

Cornelius cites ConocoPhillips’ 2012 spinoff of its refining and midstream assets into Phillips 66 itself as proof. That separation, he argues, allowed investors to value each business independently, unlocking $14 billion in shareholder value within five years. “History has shown that simplification works,” he states. “Why would Phillips 66 be any different?”

Shareholder Sentiment: A Call for Urgency

Elliott’s campaign is backed by hard data. A third-party survey of Phillips 66 shareholders, cited in the podcast’s supporting materials, reveals stark dissatisfaction. Institutional investors holding over 60% of shares rank the company last among peers in operational execution, CEO effectiveness, and value creation. A staggering 84% of respondents support divesting non-core assets—specifically midstream holdings—to eliminate the conglomerate discount. Many accuse management of “dragging its feet” on necessary changes, a sentiment echoed by Cornelius.

This chart highlights PSX’s underperformance compared to integrated peers, despite its asset-rich portfolio.

The Path Forward: Divestiture or Spinoff?

Cornelius proposes two pathways:
1. Full Divestiture: Sell midstream assets (e.g., the Bakken Pipeline) and CP Chem’s chemical joint venture to focus on refining.
2. Spinoff: Separate midstream and chemicals into standalone entities, similar to Conoco’s 2012 move.

Either option could catalyze a revaluation. Analysts estimate Phillips 66’s fair value at $120–$140 per share, versus its current price of ~$90—a 33–55% upside. Even a partial realization of this potential would rank among the largest value-creation events in energy investing this decade.

Risks and Skepticism

Critics argue that synergies between Phillips 66’s divisions—such as using refining byproducts to feed chemical plants—justify the current structure. Cornelius counters that these benefits are “not reflected in financials,” citing PSX’s 5-year average ROIC of 6% versus peers’ 10–12%. He also points to a lack of capital discipline: the company’s dividend and buybacks have consumed ~$6 billion since 2020, yet debt remains elevated.

Conclusion: The Math of Change

The case for restructuring is compelling. With shareholders demanding action and Elliott’s nominees poised to secure ~40% of board seats if the GOLD proxy succeeds, the window for change is open.

• Shareholder Support: Over 60% of institutional shares have already endorsed Elliott’s nominees, signaling a mandate for reform.
• Precedent: ConocoPhillips’ spinoff added $14B in value; Phillips 66 could replicate this, given its even larger asset base.
• Valuation Gap: At ~$90/share, PSX trades at 7.2x EV/EBITDA versus midstream peers at 12x—a 40% discount that could narrow if assets are separated.

Investors should monitor two key events: the May 2025 shareholder vote and any management response to Elliott’s proposals. For now, the data and history suggest that structural simplification isn’t just a theory—it’s the most logical path to unlocking billions in trapped value.

Disclosure: The author holds no position in Phillips 66 or related entities.