When activist investor Paul Singer and his Elliott Management investment firm first tried to split up Marathon Petroleum Corp. (NYSE: MPC) in 2016, Marathon was considerably smaller. The plan then was to separate the company’s midstream business (pipelines and marketing) from its refining business. Marathon successfully resisted by creating a new pipeline master limited partnership, MPLX L.P. (NYSE: MPLX).

Since then, Marathon Petroleum, which itself was spun off from Marathon Oil Corp. (NYSE: MRO) in 2011, paid around $23 billion for refining and midstream company Andeavor (formed by the 2017 merger of Tesoro and Western Refining with its own midstream MLP, Andeavor Logistics). Earlier this year, Marathon Petroleum merged Andeavor Logistics into MPLX at a cash price of around $9 billion.

All that spending to achieve scale has gotten under Paul Singer’s skin. In a letter to Marathon’s board, Elliott portfolio managers John Pike and Phillip Zeigler offer what they say is a plan “to remedy the Company’s chronic underperformance, to improve its businesses and to unlock significant, sustainable value for its shareholders.” Elliott owns approximately 2.5% of Marathon’s outstanding stock.

Elliott proposes to break the company into three separate pieces: a publicly traded retail firm for Marathon’s Speedway retail operations; a stand-alone MPLX that would give up its MLP status and become a corporation; and the refining business Elliott calls “New Marathon.”

The breakup would, Elliott claims, tax-efficiently unlock billions of dollars in value from shareholders. Each business “has the potential for significant upside” by operating independently. The current structure, Elliott claims, “will trade at a perpetual discount to the intrinsic value of its parts” and there is virtually no synergy value to keeping all three businesses under the same tent.

There also appears to be some ax-grinding in the letter. In 2016, Elliott noted, the firm accepted Marathon’s promise to conduct a review of a three-part split, but when the results of that review were announced, Elliott found the review’s analysis “to be deeply flawed and inconsistent with the [Marathon’s] commitment to pursue a “thorough review.”

Elliott’s letter continues:

Unbeknownst to us at the time, while the [Marathon’s] management team was purportedly giving a Speedway separation a “full and thorough review,” it was in fact already far along in discussions to acquire Andeavor, another integrated refining conglomerate. Thus, while Marathon executives were telling investors that they were taking a critical look at their structure, they were in fact already contemplating and in the process of executing a massive recommitment to their failed conglomerate model …. Furthermore, they paid a high price to do so, using Marathon’s own chronically undervalued stock as a currency to acquire Andeavor at a full sum-of-the-parts value.

Since the Andeavor merger was announced, Marathon Petroleum’s stock has dropped 23% of its value. Shares traded Wednesday at 8% above the level they traded at in early May when the acquisition of Andeavor Logistics was announced. Since the April 2018 announcement of the Andeavor acquisition, Marathon shares traded as much as 40% below its level before the announcement.

Elliott claims it can unlock more than $22 billion in value, a lift of about 61% to the current share price, and a further $17 billion by “achieving the operating full potential of Marathon’s world-class asset base.” Aside from breaking Marathon into three independent businesses, the Elliott letter offers little detail regarding its calculations.

Marathon Petroleum’s stock traded up about 8% in the early afternoon Wednesday, at $59.97 in a 52-week range $43.96 to $86.56. The 12-month consensus price target on the shares is $76.72.

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