Phillips 66 issues response to letter from Elliott Management

Phillips 66 (PSX) responded to a May 2 letter released by Elliott. The company has issued the following statement: “In its letter, Elliott attempted to rebut a number of reasonable questions Phillips 66 raised in its April 24 letter to shareholders. Our letter encouraged shareholders to scrutinize the facts of this situation – namely, Elliott’s expectation of director loyalty, its conflicting competitive interests, its misleading disclosures and its preference for theatrics over transparency, strong corporate governance and good-faith engagement with Phillips 66. Elliott’s 5,886 word letter failed to substantively resolve the core issues we raised. Instead of addressing the facts of this particular situation, Elliott points to its history of engaging with other companies. We are not interested in Elliott’s history at other companies. We are focused on ensuring Phillips 66 shareholders have complete and transparent information to make informed decisions. We reiterate below where Elliott has left questions either unanswered or raised new issues: What Real Director Independence Looks Like: Bob Pease. On March 28, Bob Pease wrote an open letter to shareholders recounting his experience in joining the Phillips 66 Board as a nominee supported by Elliott. Bob’s independence is a testament to our Board’s credibility. In his own words, Bob joined the Board with Elliott’s support and was “looking to challenge” the Board. This is what activist shareholders claim to want. Bob concluded the Board was asking the right questions, doing the work and prioritizing the interests of all shareholders. Elliott has claimed it is seeking to replace Bob because he allowed the Board to combine the Chairman and CEO role. Elliott has invested in several companies where the CEO and Chairman roles were combined without challenging this construct. Is this the sign of a shareholder who wants independent directors or directors loyal only to Elliott? Elliott also claims it offered a one-off conversation with Bob Pease, ironically, because it “was the courteous thing to do.” This outreach was conducted one week after its public presentation on February 11. That presentation followed five months of no substantive business communications or requests for engagement aside from routine investor relations engagement. What shareholder reasonably expects it can or should privately contact a single independent director? Given the heightened risk of the appearance of a loyalty test, shouldn’t Elliott be even more careful about private outreach to individual directors it identified and supported? CITGO Remains Ongoing: Elliott states it has no investment in CITGO and it is not the leading bidder. Shareholders will see through this as a semantic illusion. Elliott’s language intentionally leaves open the possibility that it remains interested and active in the ongoing pursuit of CITGO. Public reports indicate bidding remains ongoing for CITGO and will not be resolved until July1, well after the Phillips 66 Annual Meeting. Monetary Agreement With Mr. Goff: Once again, Elliott attempts a linguistics trick regarding its relationship with Gregory Goff by saying it “has never paid him a cent of compensation.” Can Elliott provide our shareholders with more clarity that there is no form of monetary agreement between Mr. Goff and Elliott or an Elliott owned entity? Are shareholders to believe that Mr. Goff has agreed to serve as CEO of Amber Energy, a wholly owned Elliott entity, with no promise of any economic gain? We reiterate that Elliott’s current nominees have a number of significant relationships with Mr. Goff and the leadership of Amber Energy. Timing of Goff Agreement and Share Purchases: Elliott has also asked shareholders to not look at the details too closely with its description of Mr. Goff’s supposedly independent views. Elliott only disclosed its agreement to pay for Mr. Goff’s solicitation expenses in an SEC filing after Mr. Goff’s letter was made public. Shareholders should examine Mr. Goff’s letter and Elliott’s response and ask if their coordination was made clear in the press releases or left to be found in a technical filing. Elliott conveniently describes the above as an April 9 filing while thoughtfully avoiding the fact the agreement with Mr. Goff was entered into on April 8. Roughly 99% of the shares Mr. Goff owns were purchased on April 8, the same day Mr. Goff and Elliott entered into this agreement. Calling this an April 9 filing, and not an April 8 agreement, is misleading and obfuscates their coordination. How likely is it that Mr. Goff independently decided to buy over 102,000 shares on the same day he entered into an agreement with Elliott? Make no mistake, we are not questioning Mr. Goff’s business acumen and reputation, but rather his unnecessary, biased and clear relationship-driven insertion into Elliott’s campaign. Annual Resignation Policy: We understand that the outcome of the shareholder vote with respect to Elliott’s proposal is non-binding. But this must be clearly separated from the mandatory nature of the underlying annual resignation policy requested in that proposal, if implemented. Elliott continues to misleadingly claim the annual resignation policy is “voluntary” while conveniently ignoring the resolve clause that it drafted, which clearly says directors would be REQUIRED to resign each year. The annual resignation policy was designed to circumvent the Company’s charter and by-laws by simulating declassification without the required 80% shareholder vote. A leading Delaware law firm has advised the Board that, if implemented, the annual resignation policy would violate Delaware law and expose the Board to potential claims for breach of fiduciary duty. When Elliott states that “the Company itself would be responsible for drafting” the policy, they miss the point that no legal policy that is intended to circumvent the Company’s charter and by-laws could be drafted and, if it were possible, Elliott would certainly have drafted it themselves. Why would Elliott want shareholders to vote for a policy it knows the Board cannot implement?”