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The barroom brawl of a boardroom fight between Phillips 66 and activist investor Elliott Investment Management to break up the massive energy company concluded May 21 with a split vote and both sides declaring victory.
With four board positions up for grabs, Phillips 66 and Elliott each claimed two seats amid Elliott’s campaign to force Phillips 66 to sell or spin off its petrochemical and midstream pipeline businesses and focus on its legacy refining unit. The battle pits one of the energy sector’s most storied players against arguably the most influential activist fund manager in the world, led by billionaire Paul Singer.
On a 14-person board chaired by CEO Mark Lashier, the future of Phillips 66 remains murky, but the vote is significant because no activist at an S&P 500 company had successfully won a board seat in at least 15 years without support of one of the big three index funds—BlackRock, Vanguard, and State Street, according to Insightia.
While Elliott’s campaign was backed by prominent proxy advisory firms Institutional Shareholder Services, Glass Lewis, and Egan-Jones, Phillips 66’s top three passive investors—the big three index funds—all sided with the company.
Elliott called the vote a clear mandate for change.
“Today’s vote sends a clear message: Shareholders demand meaningful change at Phillips 66,” Elliott said in a prepared statement.
On the other hand, Lashier called the vote supportive of maintaining Phillips 66’s current integrated structure.
“We welcome our new directors and look forward to working constructively as a board,” Lashier said in a statement. “This vote reflects a belief in our integrated strategy and a recognition that our early results do not yet reflect the full potential of our plan or the value inherent in this business.”
The fight continues
Elliott owns a nearly 6% stake in Phillips 66 and has pushed for major change, arguing that Phillips 66 has performed below peers such as Marathon Petroleum and Valero Energy. Likewise, Chevron has expressed an interest in buying out Phillips 66’s stake in its Chevron Phillips Chemical joint venture, which Lashier has resisted to this point.
Breaking up the company runs counter to Phillips 66’s strategy of late to grow its midstream pipeline business, especially in natural gas liquids (NGLs), such as propane, butane, and ethane—the primary petrochemical feedstock, which Phillips 66 sees as its largest growth potential.
Lashier argues Phillips 66 is in the early stages of its transformation strategy with refining improvements already demonstrated and that it needs to stay the course.