The Phillips 66 Los Angeles Wilmington Plant refinery is on November 28, 2022 in Wilmington, California.
Mario Tama Getty images
Company: Phillips 66 (PSX)
Business: Phillips 66 It is a production and logistics company. Works through the following segments: Midstream, Chemicals, Rafination and Marketing and Specialties (M&S). The central segment provides oil and refined transport of oil product, terminal and processing services, as well as transport, storage, storage, fractionation, processing and marketing. The Chemicals segment consists of 50% of the company's capital investments in Chevron Phillips Chemical Company LLC (CPCHEM), which produces and sells petrochemicals and plastics worldwide. The refining company refineates oil and other raw materials with oil products, such as gasoline, distillates and air fuels, as well as renewable fuels, with 12 refineries in the USA and Europe. Finally, purchases of marketing and specialties in resale and markets of improved petroleum products and renewable fuels.
Stock: USD 52.88 billion (USD 128.04 per share)
Phillips 66 actions over the past year
Activist: Elliott Investment Management
Property: ~ 4.6%
Average cost: Not applicable
Comment of activists: Elliott is a very successful and smart activist. The company's team includes analysts from leading private equity companies, engineers, operational partners – former technology presidents and COO. During the investment assessment, the company also employs specialist and general management consultants, experts of cost analysts and industry specialists. He often watches companies for many years before investing and has a wide stable of impressive candidates for the board. Elliott historically focused on strategic activism in the technology sector and was successful in this strategy. However, over the past few years, the company of company activism has increased and does much more management oriented activism and creates a value from the level of management to a much greater extent of companies.
What's going on
February 11 Elliott issued a letter and a presentation for the board of Phillips 66, showing “Streamline66”, a plan for solving the company's further practices and poor corporate order practices despite the portfolio of attractive assets. It covers the following steps: (i) improve the company's portfolio by selling or separating operations in the central part, as well as the potential sale of its interest in CPCh; (ii) initiate an operational review, committing to ambitious refinational purposes and closing the eBitda per-barrel gap with peers; and (III) increase supervision and increase the responsibility of the Phillips 66 management team by adding new independent directors to the board.
Behind the scenes
Phillips 66 (PSX) is a production and logistics company of energy. The company maintains four valuable asset segments, each of which offers scalability and a strong competitive position. Its central segment supports vertically integrated activity in the field of natural gas from wells to water (NGL) in the pools of Permian and DJ. The chemical segment covers their global Petrochemical scale Joint Venture CPCHEM. The refining segment is one of the largest refining systems in the USA. The marketing and specialty segment consists of scaled marketing activities and the production of specialist products. Despite the attractiveness of these assets individually, Phillips trades with a significant discount on the valuation of the sum of parts. While about 70% of the company's profits against interest, taxes, cushioning and depreciation come from many midstream and marketing segments, which trade even 10 times EBITDA, PSX trades closer to the multiple of its lowest valuable raffin segment segment 6.6 times. As a result, the company significantly achieved worse results of achieving the average of its closest peers, Valero Energy (VLO) and Marathon Petroleum (MPC), in the total total phrases by 9%, 33%and 97%in the last 1-, 3- and respectively 5- summer periods.
Elliott publicly involved PSX for the first time in November 2023, when the company sent a letter to the management board, announcing an investment of $ 1 billion in the company. Elliott criticized PSX for the history of worse results, citing issues such as the departure from the departure from the refining of the Super-Cykl in “22 and 23”, growing operational expenses (OPEX) to the barrel in absolute and relative terms compared to peers VLO and MPC and rising costs in relation to peers after the cost reduction program. Elliott noticed at that time a potential price of over 200 USD for the action, but the company shared Wall Street's fears that PSX was primarily a history of execution.
Despite this, Elliott acted as we want active shareholders to do it, as opposed to how they are perceived by many. The company gave the CEO to Marsz Lashier the opportunity to demonstrate significant progress for its purposes of $ 14 billion in the average cycle until 2025, the sale of assets without grounds of $ 3 billion and increasing the long -term policy of reimbursement of PSX capital. They quickly and amicably agreed with the company to add two new directors to the management board. The company added to the board of Robert Pease, former director Cenovus February 2024And he agreed to continue working with Elliott on the identification of the second director in the coming months. The second director never materialized.
Now, over a year later, Elliott has increased its position to $ 2.5 billion and will become more active in creating the values of shareholders, issuing a public letter and a presentation to “streamline66”. Elliott identifies three basic sources of worse PSX results. First of all, the company claims that the internal value of the company was covered by its inefficient structure of conglomerates, which caused IT trade with the lowest multiple refining segment, despite most EBITDA from other premium companies. Secondly, the PSX operational results did not achieve management goals, and profitability continues to delay peers. In 2024, PSX delivered a corrected annual EBITDA in the amount of $ 4.5 billion to $ 8.7 billion, much lower from $ 14 billion $ 2025 in the middle of the cycle. Opex increased to the company's barrel in two consecutive quarters, and its gap in the profitability of EBITDA to the barrel only expanded compared to VLO. Thirdly, Elliott claims that the continuous management of the management for a successful return without any measurable financial results was eroded by their credibility among investors. The company also announced that the management has failed in its basic supervision duties, rewarding management from remuneration disconnected from the company's results.
This was what prompted Elliott to release a three -part plan: (I) to improve the PSX portfolio, (II) Operational Performance Review with a view to the improvements of the refining margin and (III) improvement of management credibility by adding new directors. First of all, Elliott suggests a whirlwind or sale of MidStream PSX assets, estimating that they can provide about 40 to 45 billion dollars as independent or in the strategic sale of the buyer. In addition, Elliott also suggests selling CPCh and JET, estimating that net revenues of $ 48 billion of three assets would be equivalent to 96% of the current capitalization of the company's market. Increasing this amount of capital can allow PSX to buy back from 60% to 90% of the company's other shares and increase the withdrawal index to 100% free cash flows, just like its peers. Thanks to the improved supervision enabled by adding new directors with industry and operational experience, PSX can approach the improvement of EBITDA to the barrel and progress towards their refining goals.
Elliott estimates that this plan can bring the price of approximately USD 200 per share. In addition, the company claims that if PSX performs an Elliott textbook employed in its commitment to MPC, shares can increase to over USD 300. At Marathon, Elliott helped to facilitate the addition of a new director, go to the new general director, closing the gap in EBITDA to the Barrel from VLO, a pension in the amount of 50% of his shares overdue from 2021, and the sale of Speedway retail operations for a billion cash influence after taxation. From Elliott He sent his first letter to the marathon On November 21, 2016, MPC exceeded VLO and PSX by 56% and 116%, respectively.
A good plan is the first step, implementing it is a different story. This time, Elliott will not decide on one or two directors, especially after PSX did not fulfill the contract to add the second director with the refinery. Elliott gave management time for performance. Management failed. Now Elliott will do what the management should do, but not: pull the management. Elliott does not clearly state that he wants to replace higher level management, but discusses the damaged credibility of the management and the eroded trust of investors, and it is difficult to fix without replacing management. Moreover, Elliott Cyt CEO Replacement As the first object that led to successful turns in their engagement in Marathon and Suncor. After closing the company's nomination window and four directors of a 14-person council for elections, we expect Elliott to set a full list of four directors, if only to keep their options, discussing management with the management board.
Ken Squire is the founder and president of the 13D monitor, institutional research service for shareholders activists and the founder and head of the 13D Activist Fund portfolio, an investment fund that invests in the portfolio of 13D activists.