Update 10:35pm: Adds Phillips 66 comment.
Phillips 66 (NYSE:PSX) soared 4% after investor activist Elliott Investment Management revealed its $1 billion stake in the company and its intention to secure board seats.
Activist Investor’s Moves
Prominent hedge fund Elliott is vying for two board positions at Phillips 66, according to a statement and letter from the activist. Elliott claims there is potential for a 75% increase in PSX’s current stock price.
“We believe the Board must take several steps to reassure investors that Phillips 66 is in the best possible position to achieve its value-creation potential,” Elliott said in the statement.
Elliott aims to close the current $2-3 per barrel refining EBITDA gap between PSX and Valero (VLO). The activist also believes PSX could generate $15 billion to $20 billion in after-tax cash proceeds from various asset sales.
Phillips 66 issued a statement expressing that it has held discussions with Elliott over the last several weeks and intends to continue a “constructive dialogue.” The company commented, “We agree with Elliott that successful execution of our strategic priorities will drive substantial stock price performance and believe that we have the right management team and Board in place to deliver long-term, sustainable value.”
Focus on Performance
Elliott is centered on Phillips 66’s underperformance in the refining area. The activist group believes that the company’s expenses per barrel are higher than those of Marathon Petroleum (MPC) and Valero (VLO), which they see as a key driver of the company’s stock price underperformance.
“We believe this lack of opex discipline has been a key driver of the company’s stock-price underperformance, particularly in the context of the substantial improvements made by its similarly situated peer, Marathon,” Elliott’s John Pike and Mike Tomkins wrote in the letter.
The news of Elliott’s stake was earlier reported by CNBC. Elliott disclosed in its Q2 13F filing in August that it purchased 775K shares of Phillips 66 (PSX) in Q2.