The Phillips 66 Los Angeles Refinery Wilmington Plant stood on November 28, 2022 in Wilmington, California.
Mario Tama | Getty Images
Company: Phillips 66 (PSX)
Business: Phillips 66 It is an energy manufacturing and logistics company. It operates through the following sections: Midstream, Chemicals, Oil Refining, Marketing and Specialty (M&S). The midstream segment provides crude oil and exquisite petroleum products transportation, terminal and processing services, as well as natural gas and natural gas liquid (NGL) transportation, storage, fractionation, collection, processing and marketing services. These chemical sectors include the company’s 50% equity investment in Chevron Phillips Chemical Company LLC (CPCHEM), which produces and sells petrochemicals and plastics worldwide. The refining business refines crude oil and other feedstocks into petroleum products such as gasoline, distillates and aviation fuels, as well as renewable fuels, in 12 refineries in the United States and Europe. Finally, the marketing and specialized areas for resale and marketing are purchased for petroleum products and renewable fuels.
Stock market value: $52.88B ($128.04 per share)
Phillips 66 shares in the past year
Activist: Elliott Investment Management
ownership: ~4.6%
Average cost: N/A.
Activist Comments: Elliott is a very successful and keen radical investor. The company’s team includes leading tech private equity firms, engineers, operations partners – former technology CEOs and COO analysts. When evaluating investments, the company also hires professional and general management consultants, expert cost analysts and industry experts. It often watches the company for many years before investing and has a wide range of board candidates. Elliott has historically focused on strategic activism in the field of technology and is very successful in that strategy. However, over the past few years, the company’s activism group has grown and has created more governance-oriented activism at the board level at a larger corporate breadth and created value from the board level.
what happened
Elliott on February 11 Send a letter And introduced to the Phillips 66 board of directors “Streamline66”, a plan to address the company’s ongoing underperforming performance and poor corporate governance practices. It includes the following steps: (i) simplify the company’s portfolio and potential sales of interest in CPCHEM through sales or spin-offs of the midstream business; (ii) narrow the EBITDA gap per barrel by committing to ambitious refining goals and closing the EBITDA gap with peers to begin the operational review; (iii) increase oversight and accountability for Phillips 66’s management team by adding new independent directors to the board.
Behind the scenes
Phillips 66 (PSX) is an energy manufacturing and logistics company. The company maintains four valuable asset segments, each offering scalability and strong competitive positioning. Its midstream segment operates vertically integrated wellhead-to-water natural gas liquid (NGL) operations in the Permian and DJ Basins. The chemical segment includes its world-scale petrochemical joint venture CPCHEM. The refining segment is one of the largest refining systems in the United States. Marketing and specialized areas include the expanded fuel marketing business and the production of specialized products. Although these assets are attractive individually, Phillips is worth a lot of discounts at its partial valuation. While about 70% of the company’s earnings account for earnings before interest, taxes, depreciation and amortization come from advanced multiple midstream, chemicals and marketing segments, trading up to 10 times EBITDA, but PSX’s transactions are closer to its value The lowest multiple of refinement. The segmentation is 6.6 times. As a result, the company’s performance is significantly underperforming its closest peers, Valero Energy (VLO) and Marathon Petroleum (MPC), with cumulative total returns down 9% in the past 1, 1, 3– 33% and 97% respectively, for 5 years.
Elliott first publicly participated in PSX in November 2023, when the company sent a letter to the board of directors that it announced its $1 billion investment in the company. Elliott criticized PSX for its poor performance history, citing issues such as standing out from 22 and ’23 and ready to take advantage of the super cycle of refining, refining operating expenses per barrel (OPEX) in absolute and relative The terminology increases in cost compared to peer VLO and MPC, after reducing costs, relative to peer costs. Elliott’s potential share price was over $200 at the time, but the company expressed concern about Wall Street because PSX was mainly an executive story.
Still, Elliott acts in the way we want active shareholders to do so, not what many think of them. The company gave CEO Mark Lashier meaningful progress to the $14 billion mid-term EBITDA target from 2025 to 2025, a $3 billion non-core divestment and added PSX’s long-term capital return policy. They quickly and friendly agreed to the company’s consent, adding two new directors to the board. The company added Robert Pease, former Cenovus executive, to the board of directors February 2024and agreed to continue working with Elliott to determine the second director in the coming months. The second director never came to fruition.
Now, over a year later, Elliott has raised his position to $2.5 billion and will become more active in creating shareholder value, sending open letters and introductions to “strapline66”. Elliott identified three main sources of PSX’s underperformance. First, the company believes that the company’s intrinsic value is masked by its inefficient corporate structure, and while most EBITDA comes from other advanced businesses, it’s dealings are consistent with its lowest multiple refining segment. Secondly, PSX’s operating performance failed to meet management’s goals and its profitability continued to lag behind. In 2024, PSX’s annual adjusted EBITDA is between $4.5 billion and $8.7 billion, well below its $14 billion 2025 medium-term target. The company’s OPEX rose for two consecutive quarters, with its profitability gap only widening compared to VLO. Third, Elliott asserted that management continues to claim success without any tangible financial results, which weakens their credibility with investors. The company also said that the board’s basic supervisory responsibilities failed to pass compensation incentive management that is disconnected from the company’s performance.
This is what led to Elliott’s three-pronged plan: (i) simplify PSX’s portfolio, (ii) review operational performance to improve profit margins, and (iii) improve management capabilities and add new directors. First, Elliott recommends spinning or selling midstream assets of PSX, with estimates that they can sell approximately $40 billion to $45 billion as independent or to strategic buyers. In addition, Elliott also recommends selling CPCHEM and JET, with an estimated net income of $48 billion from these three assets equivalent to 96% of the company’s current market capitalization. Raising a quantity of capital can enable PSX to buy back between 60% and 90% of the company’s outstanding company shares and increase the payment ratio to 100% free cash flow like its refining peers. By adding enhanced oversight by new directors with industry and operational experience, PSX can move towards improving its EBITDA per barrel and towards refining goals.
Elliott estimates that the plan could generate a share price of about $200 per share. Additionally, the company asserts that if PSX executes the script Elliott in an MPC engagement, the stock could increase to more than $300. Elliott helped promote the transition to the new CEO, the gap to the new CEO, the closure of the ebitda per barrel, 50% of the stocks that have retired since 2021 and retired with 17 The racing retail business was sold at a price of USD. Billion dollar cash gains. Since Elliott Send the first letter to the marathon On November 21, 2016, MPC performed 56% and 116% better than VLO and PSX, respectively.
Making a good plan is the first step, and implementing it is another story. This time, Elliott will not settle for one or two directors, especially after PSX failed to follow the agreement to add a second refinery experience. Elliott gave management time. Management failed. Now, Elliott will do what the board should do, but not: hold management responsibilities. Elliott didn’t explicitly point out that it was seeking to replace senior management, but it did discuss that management’s credibility has been damaged and eroded investor confidence, which is difficult to resolve without replacing management. . And Elliott did it Quote CEO replacement As the first project that led to the successful battle between Marathon and Suncor. With the company’s nomination window closed this week and four directors on a 14-person board of directors, we hope Elliott will nominate the full directors of four directors, even if it’s just discussing governance with the board. Its choice is also reserved.
Ken Squire is the founder and president of 13D Monitor, an institutional research service about shareholder activism and the founder and portfolio manager of 13D Radical Fund, an investment activist 13D portfolio mutual funds.
