Elliott Investment Management nominated seven directors to Phillips 66's board, laying the groundwork to push for changes that include spinning off or selling its midstream business, two people familiar with the matter said.

Elliott Investment Management is heading toward a proxy battle with Phillips 66 after failing to reach an agreement with the energy group’s leadership on a path to improving performance.

Elliott Management said Tuesday it has nominated seven directors to the Phillips 66 (NYSE:PSX) board, laying the groundwork to push for changes that include spinning off or selling its midstream business.

Elliott Investment Management, which has taken a $2.5 billion stake in Phillips 66, said the nominated directors will bolster accountability and improve oversight of Phillips’ management initiatives.

In addition to nominating the directors, Elliott has submitted a proposal to declassify Phillips 66’s board, which would put every director up for election every year. Elliott said Phillips 66 itself has attempted to put through a similar proposal five times in the past nine years, and 99% of shares that voted in 2023 were in favor of the proposal.