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The US oil refiner Phillips 66 has become the latest target of Elliott Management after the activist investor took a $1bn stake and called for new blood on the company’s board to remedy “underperformance”.

In a letter to the board on Wednesday, Paul Singer’s aggressive hedge fund said Phillips 66’s returns had lagged behind peers Valero and Marathon Petroleum and called for the installation of two “highly qualified new directors”.

“We find the market’s scepticism to be understandable, and we believe the board must take several steps to reassure investors that Phillips 66 is in the best possible position to achieve its value-creation potential,” wrote Elliott partner John Pike and portfolio manager Mike Tomkins.

Shares in Phillips 66 jumped about 4 per cent on Wednesday. The stock had risen 27 per cent over the past five years to Tuesday, compared with a 64 per cent rise in the S&P 500 oil refining and marketing index over the same period.

The latest campaign from Elliott comes after it prevailed in a stand-off with NRG Energy this month. Following a months-long campaign by the hedge fund, the Texas-based utility and power producer parted ways with its chief executive and agreed to overhaul its board. 

Phillips 66 was formed in 2012 through a spin-off of oil producer ConocoPhillips’ downstream assets. It is one of the biggest western refining companies, with 12 plants spread across the US and Europe. It has a big presence in the oil pipeline and storage business and sells fuel to consumers via a network of about 7,200 outlets in the US and another roughly 1,300 in Europe.

The Houston-based company is also active in chemicals through a stake in CPChem, which it owns with Chevron. It is converting its San Francisco refinery in California into one of the world’s biggest renewable fuels plants at a cost of $1.25bn.

Mark Lashier, Phillips 66 chief executive, said the company had “engaged in discussions” with Elliott and “welcome[d] their perspectives and the perspectives of other shareholders on our strategy and the actions we are taking to drive long-term sustainable growth and value creation”.

“We remain committed to acting in the best interests of our shareholders,” he added.

Elliott said that the company’s performance had declined in recent years “as it has shifted its focus away from its Refining segment”. It cited comments from Lashier in January in which he conceded the company had “taken our eye off the ball a little bit with respect to refining”.

A cost-cutting programme launched in 2019 had failed to achieve its goals, Elliott said, with a widening gap between its operating costs and that of rival Valero.

Elliott ran a similar campaign against Marathon Petroleum in 2019, which led to the replacement of the chief executive and the spin-off of its Speedway retail operation.

The hedge fund said it was limiting its campaign against Phillips 66 to calling for new directors for now, but hinted that it could push the company to “follow a similar path” to Marathon through management changes and spin-offs of its stake in CPChem, European convenience stores and some of its non-operated midstream stakes.

“At present, we believe Mr Lashier and the rest of the management team deserve investor support so long as they demonstrate meaningful progress against these targets,” Elliott wrote.