Activist Elliott has unfinished business at Phillips 66. How its plan to build value may unfold

Core Viewpoint - Elliott Management has proposed a plan called "Streamline66" to address Phillips 66's underperformance and governance issues, suggesting asset sales and management changes to unlock shareholder value [3][9]. Company Overview - Phillips 66 is an energy manufacturing and logistics company with four segments: Midstream, Chemicals, Refining, and Marketing and Specialties (M&S) [1][4]. - The Midstream segment provides transportation and processing services for crude oil and natural gas liquids, while the Chemicals segment includes a 50% stake in Chevron Phillips Chemical Company [1][4]. - The Refining segment operates 12 refineries in the U.S. and Europe, producing various petroleum products, and the M&S segment markets refined products and renewable fuels [1][4]. Activist Engagement - Elliott Management first engaged with Phillips 66 in November 2023, announcing a $1 billion investment and criticizing the company's underperformance and management's inability to capitalize on refining opportunities [5][6]. - The firm has since increased its investment to$2.5 billion and is taking a more active role in advocating for changes [7]. Underperformance Analysis - Elliott identifies three main reasons for Phillips 66's underperformance: inefficient conglomerate structure, failure to meet operational targets, and management's declining credibility with investors [8][9]. - The company has not met its mid-cycle EBITDA target of $14 billion for 2025, with 2024 annualized adjusted EBITDA projected between$4.5 billion and $8.7 billion [8]. Proposed Plan - Elliott's "Streamline66" plan includes: 1. Selling or spinning off the midstream assets, potentially generating$40 billion to $45 billion [9]. 2. Selling the company's interest in CPChem, estimating net proceeds of$48 billion from the three assets [9]. 3. Adding new independent directors to improve management oversight and accountability [3][9]. - The plan could potentially raise Phillips 66's share price to approximately $200, with further execution possibly increasing it to over$300 [10]. Governance and Management Accountability - Elliott emphasizes the need for improved management accountability, suggesting that the board has failed in its oversight duties and that management's credibility has been damaged [8][11]. - The firm plans to nominate a full slate of four directors to the board to ensure better governance and oversight [11].