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Elliott Investment Management's Call for Change at Phillips 66

Elliott Investment Management L.P., a prominent investment firm, has sent a letter to shareholders of Phillips 66, urging the necessity for change within the board of directors. With an investment surpassing $2.5 billion, Elliott has expressed growing concern over the company's performance, pointing out that patience among investors has not been rewarded. This comprehensive communication outlines specific reasons why immediate change is essential for revitalizing Phillips 66's long-term prospects.

The Call for a New Strategy

In its detailed proxy materials, Elliott highlights the chronic underperformance of Phillips 66 compared to industry peers. A decade-long analysis reveals that shares of Phillips 66 have lagged behind Valero Energy and Marathon Petroleum by significant margins of 138% and 188% respectively. To address these issues, Elliott presents the "Streamline 66" plan, a strategic initiative aimed at elevating the company's stock price to over $200 per share. This plan focuses on simplifying the corporate structure and enhancing governance practices.

The Streamline 66 Plan

Elliott's three-part plan comprises:
1. Portfolio Simplification: The recommendation includes divesting non-core assets, particularly in the midstream sector, which could potentially return over $40 billion to shareholders. This divestiture would enable management to focus on improving refining operations that have underperformed relative to peers.
2. Operational Review: There is an urgent need for a thorough assessment of Phillips 66's refining operations. Elliott argues that a closer examination of operational efficiency could reveal pathways to restore the company to its former stature as a leading player in the refining sector. Setting ambitious but realistic targets for refining disciplines is crucial.
3. Board Accountability: Elliott advocates for enhancing oversight by introducing new independent directors with the requisite industry experience. The company's current governance has come under fire for failing to hold management accountable for missed targets, warranting a fresh perspective in the boardroom.

Nominees for Change

Elliott has identified four candidates to bring the needed expertise to Phillips 66's board. Each nominee boasts a robust background in various sectors of the energy industry:

• - Sigmund Cornelius: Former CFO of ConocoPhillips with extensive experience in value creation through strategic divestitures.
• - Michael Heim: Founder of Targa Resources, known for their success in the midstream segment, bringing valuable insights from a leading company in the Permian Basin.
• - Brian Coffman: A seasoned operator with decades in refining, who has previously managed Phillips’ refining assets and can share critical operational intelligence.
• - Stacy Nieuwoudt: An energy analyst with a deep understanding of market dynamics and governance structures, she would apply her investment acumen to Phillips' challenges.

Governance Reform Proposal

Additionally, Elliott has proposed a transformative governance change: the election of all directors annually rather than the current staggered system. This proposal, designed to enhance accountability, would require the commitment of each board member to seek re-election each year, ensuring they remain answerable to the shareholders. Past attempts to de-stagger the board have faced hurdles, including on unrealistic 80% voting thresholds.

Elliott asserts this governance revision aligns with best practices seen in 90% of companies in the S&P 500, advocating for increased shareholder control and oversight over board decisions. The response from Phillips 66's management, however, has been largely negative, emphasizing a reluctance to abandon historic governance structures that have failed to deliver results.

Conclusion

In closing, Elliott Investment Management is calling on all Phillips 66 shareholders to support their proposals and vote for the proposed director slate on the upcoming GOLD proxy card. The message is clear: fundamental changes in leadership and governance are essential for Phillips 66 to revitalize its operations and cultivate shareholder value. For more insight into this evolution at Phillips 66, shareholders are encouraged to visit Streamline66.com, the dedicated platform for this campaign.

The promise of a reinvigorated Phillips 66 lies not just in operational changes, but in a commitment to accountability from its leadership through the board—something that Elliott believes could pave the way for a more profitable and successful future for all investors involved.