Elliott Investment Management secured a major win in its ongoing battle with Phillips 66 on Monday. The influential proxy advisory firm, Institutional Shareholder Services (ISS), recommended that shareholders elect all four of Elliott’s director nominees to the board.
Elliott, which holds a $2.5 billion stake in Phillips 66, has been pushing for significant changes at the $48 billion oil refiner, including the potential spin-off or sale of its midstream business. The hedge fund has called for a board refreshment to support these changes.
With ISS’s backing, along with recommendations from smaller proxy firms Glass Lewis and Egan-Jones, Elliott seems to have gained substantial support from investors, according to analysts.
In its report, ISS criticized Phillips 66’s board for lacking critical industry expertise and for not providing effective oversight of management. “The dissident has assembled a strong slate, with the experience and independence that PSX requires,” the ISS report stated.
Phillips 66 did not immediately respond to requests for comment. In a statement, Elliott said that ISS’s recommendations validate their case for change.
Proxy advisory firms’ recommendations play a significant role in guiding investors on board elections, particularly in contentious battles like this one. Elliott and Phillips 66 have both invested significant time and resources into persuading shareholders.
The fight is among the most heated proxy battles of the year, with both sides pushing hard for shareholder votes on the election of four directors out of a 14-member board. Elliott has also criticized Phillips 66’s structure, where not all directors are elected annually, calling it a point of contention for investors.
Both Glass Lewis and Egan-Jones have offered their own recommendations, with Glass Lewis suggesting support for three of Elliott’s nominees and Egan-Jones backing all four. The votes will take place at Phillips 66’s annual meeting on May 21.
Phillips 66’s stock has seen a decline of 18% over the past year, closing at $118.68 on Monday. Despite positive returns since the company was spun off from ConocoPhillips in 2012, ISS noted that the stock has underperformed its peers since mid-2021.
“The data does not support the board’s argument that the integrated strategy results in superior returns over the long term,” ISS added, referring to the company’s efforts under CEO Mark Lashier, who took over from Greg Garland in 2022.
Elliott, a hedge fund managing $70 billion, has a strong track record in the energy sector, with successful investments in companies like Marathon Petroleum, NRG Energy, Suncor Energy, and Hess. John Pike, a partner at Elliott, has led the Phillips 66 campaign and also a recent $2.5 billion investment in BP.
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