In a rapidly evolving proxy battle that has caught Wall Street’s attention, activist investor Elliott Investment Management has intensified its campaign against oil refining giant Phillips 66 (NYSE:PSX). On March 25, 2025, Elliott filed a lawsuit against the company and its board, demanding that four board seats be up for election at the upcoming shareholder meeting. The lawsuit claims that Phillips 66’s staggered board structure violates its own governance requirements, which mandate that director classes be equalized. Just a day later, Phillips 66 responded by nominating two new directors and urging shareholders to approve the declassification of the board. This marks a critical juncture in a months-long standoff, with Elliott pushing for a $2.5 billion stake-backed transformation of the business, including a potential sale or spinoff of its midstream operations. The firm has also nominated seven directors and accused Phillips 66’s management of lacking operational expertise. Given this backdrop, one must wonder if Elliott’s activist campaign could actually have some logic and whether it could truly reshape Phillips 66 in the years ahead.
Unlocking Hidden Value Through A Midstream Business Spinoff
One of the core tenets of Elliott’s activist push is its proposal to spin off or sell Phillips 66’s midstream business, which includes assets responsible for transporting oil and gas across critical U.S. energy corridors. Elliott argues that this segment, which it values at over $40 billion, is undervalued within the integrated structure of the company. Phillips 66, on the other hand, has defended its decision to retain the midstream assets, citing strong integration benefits with its refining and petrochemical businesses, especially around the Sweeny Hub. CEO Mark Lashier emphasized that the company’s vertically integrated network — from gathering and processing to refining and chemicals — allows for operational synergies and daily system optimization. Nevertheless, Elliott’s stance is that the market fails to fully appreciate this integration, and that separating the midstream unit could surface significant shareholder value. The activist also points to the monetization of non-core assets, such as the sale of the Rockies Express and Gulf Coast Express pipeline stakes at attractive multiples, as a precedent for value-unlocking moves. Phillips 66 has expanded its midstream footprint through recent acquisitions like EPIC and Pinnacle, yet these transactions have yet to reflect in a rerated stock price. A spinoff could attract investors focused solely on stable, fee-based infrastructure returns, potentially leading to a higher overall valuation for both the refining and midstream entities. With Phillips 66’s stock still underperforming rivals and trading at a lower multiple than Elliott believes it deserves, the pressure to consider structural separation may continue to mount.
Governance Reforms Could Strengthen Board Accountability
Elliott’s lawsuit and ongoing proxy battle have placed a spotlight on Phillips 66’s governance practices, particularly its classified board structure. The activist investor has called for at least four board seats to be up for election in 2025, arguing that the current setup — with unevenly distributed board classes — violates the company’s own governing documents. Phillips 66 has responded by proposing the declassification of its board and nominating new independent directors, including Howard Ungerleider, former Dow executive, and Nigel Hearne of Harbour Energy. This clash reflects a broader debate about corporate accountability and board responsiveness to shareholder concerns. Elliott has accused the existing board of lacking sufficient refining experience and relying heavily on consultants for operational decision-making. It has also expressed frustration that only one of its proposed nominees was previously appointed, despite initial agreements for greater board representation. If successful, Elliott’s push for annual director elections and more shareholder-friendly governance could lead to increased board independence and oversight, particularly around strategic decisions such as capital allocation, asset monetization, and leadership appointments. While Phillips 66 contends that Elliott’s approach risks prioritizing short-term gains over long-term stability, the pressure from the activist could nevertheless accelerate reforms that improve transparency, shareholder rights, and operational oversight. In the broader context of activist investing, such governance changes often serve as a catalyst for improved company performance, at least from an investor engagement perspective.
Operational Focus May Drive Refining Margin & Reliability Gains
Beyond structural and governance changes, Elliott’s campaign has emphasized the need for stronger operational execution within Phillips 66’s core refining business. According to the firm, the current management team has underperformed and lacks direct experience in refinery operations. In response, CEO Mark Lashier outlined a multi-year reliability and efficiency initiative that has already yielded measurable results: improved crude utilization rates of 94% in Q4 2024 (above the industry average of 91%), enhanced clean product yields from 84% to 87%, and significant cost reductions through more targeted maintenance turnarounds. However, Lashier acknowledges that this is only 2.5 years into a longer transformation journey. The company has also invested in technologies to improve predictive maintenance and asset flexibility. Elliott’s pressure could expedite further improvements by keeping management laser-focused on margin capture, yield enhancement, and cost discipline — especially as volatile refining margins continue to shape earnings. The activist may also push for refining-specific board expertise to guide technical decisions and capital deployment more effectively. While Phillips 66 has signaled progress, the involvement of Elliott could reinforce the urgency of hitting key operational benchmarks and reduce tolerance for execution missteps. Given the cyclicality of the refining business, even marginal gains in reliability, throughput, and product mix can materially improve financial performance. The risk remains, however, that external pressures may force short-term decisions at the expense of long-term refinery upgrades or compliance-related capital expenditure.
Strategic Clarity Could Boost Investor Confidence & Valuation
A recurring theme in Elliott’s campaign is its argument that Phillips 66 lacks strategic focus and suffers from a valuation discount relative to its peers. Over the past year, Phillips 66 stock has dropped 15%, underperforming rivals like Valero and Marathon Petroleum, both of which have seen milder declines. Meanwhile, the S&P 500 has surged over 20% during the same period. Elliott believes this underperformance is not merely a product of market conditions but stems from structural inefficiencies, unclear capital allocation priorities, and investor uncertainty about the long-term roadmap. While Phillips 66 has maintained a strong credit rating (A3/BBB+) and returned over 100% of operating cash flow to shareholders in 2024, these financial milestones have not translated into share price appreciation. By forcing the company to articulate a more focused strategic vision — whether through portfolio simplification, increased Midstream transparency, or clarity on Chemicals and Renewables — Elliott could catalyze a rerating of the stock. Lashier has already outlined growth paths in Midstream and Chemicals, including CPChem’s expansion in North America and Qatar, and highlighted a 66% total shareholder return since July 2022. Still, Elliott’s campaign suggests that more needs to be done to communicate these achievements effectively and structure the business in a way that maximizes perceived value. Investors may respond favorably if the company emerges from this proxy contest with a streamlined portfolio, enhanced transparency, and a clear framework for capital deployment and segment-level performance tracking.
Final Thoughts
Source: Yahoo Finance
The battle between Elliott Investment Management and Phillips 66 has resulted in the company’s stock price becoming increasingly volatile. The fact remains that Phillips 66 continues to be one of the cheapest energy manufacturing and logistics players of its size with an LTM EV/ Revenue valuation of hardly 0.50x, clearly indicating some scope for value unlocking. This episode does underscore the growing influence of shareholder activism in reshaping large-cap industrial companies. From pushing for a Midstream separation and governance reforms to demanding operational improvements and strategic clarity, Elliott’s campaign could have lasting implications for the company’s structure and performance. However, as with any activist engagement, the outcomes are uncertain, and the trade-offs between short-term value creation and long-term stability must be carefully considered before investing in the stock.
