*

Elliott takes stake in oil major BP, sending shares higher

*

Investment firm has built reputation as relentless

activist

*

Elliott relies on thorough research to boost shareholder

wealth

By Svea Herbst-Bayliss

NEW YORK, Feb 13 (Reuters) - When Elliott Investment

Management buys into a company to agitate for change, bankers

and lawyers who have faced the hedge fund say executives can

expect a strong view on their shortcomings, backed by meticulous

research and financial firepower.

Now, storied oil giant BP is in Elliott's sights.

The investment firm, which manages $70 billion, has not

disclosed the size of its stake in BP or what changes it wants

to see. But the mere whiff of Elliott playing the corporate

agitator this week sent BP shares to their highest since August,

on expectations the fund will force improvements to unlock

shareholder value.

The day after news of Elliott's position broke, BP promised to

reset its strategy as it reported weaker-than-expected results.

It was not immediately clear whether Elliott played a role

in the company's move, and BP's chief executive declined to

comment on the hedge fund's investment.

Bankers and lawyers who have worked for the hedge fund or

defended companies against it said Elliott is not an investor a

board can ignore. The fund has built a reputation as a

relentless activist, sometimes labeled as the most powerful

player, but also hostile, in bankers' notes.

On the flip side, Elliott argues its toughness will

ultimately earn investors in the target company and its own

portfolio bigger returns.

"Elliott's team is truly scary smart. Sometimes the emphasis

is on 'smart' and other times it is on 'scary'," said Kai

Liekefett, co-chair of law firm Sidley Austin's shareholder

activism and corporate defense practice.

The investment firm is known for deep fact-finding on a

target company, its peers and sector, possible buyers if a sale

is considered.

Sometimes executives are caught off guard by Elliott's

investment, lawyers and bankers said, noting a call or news

article announcing a position will spark a fevered defense.

"Elliott has revived the 'ambush attack' in recent years.

While Elliott and most activist investors used to first approach

a target privately, nowadays Elliott often goes public right

away - without any real advance warning," Sidley's Liekefett

said.

Elliott, while finding its roots in founder and co-CEO Paul

Singer's middle name, is not a one-man show like some other

prominent activist firms. Instead the firm, which employs

roughly 600, relies on a large team of portfolio managers and

analysts who keep tabs on sectors ranging from energy to retail

and in every part of the world.

The team prefers to stay out of the media limelight to

let the work speak for itself, whether it is trying to break

apart a corporate deal in Asia or a conglomerate in the United

States.

But if a company resists and Elliott can't be convinced of its

counterarguments, discussions can rapidly escalate into public

threats of proxy battles and special meetings.

Lawyers, bankers and other investors, who know the firm well

by having worked for or against it, say Elliott delivers an

unmistakable message to a company: Agree with us and we'll let

you take credit for positive changes, or resist and face

consequences.

Many sources requested anonymity for fear of upsetting the

firm.

Elliott declined to comment.

While Elliott is officially labeled a multi-strategy hedge

fund that invests in real estate, convertible bonds and

sometimes buyouts, its equity activism strategy has earned the

most headlines.

Last year, 15 companies were approached by Elliott, including

Southwest Airlines ( LUV ) and Starbucks ( SBUX ), and the firm

secured 12 board seats.

Since its founding in 1977 with $1.3 million in assets,

Elliott has returned roughly 13% net of fees per year, a person

familiar with its performance said. Assets have doubled in the

last seven years. Over the last five years, Elliott has targeted

ever bigger companies, industry data show.

Elliott investors praise the firm's steady returns. While it

may not match other firms' occasional eye-popping gains, it has

had only two years of losses in its nearly 50-year history.

Often Elliott's outreach is private and negotiations are

conducted behind closed doors, sometimes not becoming public

until they are resolved, as happened at Etsy last year when an

Elliott portfolio manager joined the board.

But the firm leaves no doubt it can push ahead on its thesis for

corporate overhaul even if a company rebuffs it. At Southwest

Airlines ( LUV ), where Elliott wanted to refresh the board, review

strategy and fire the CEO, the carrier eventually yielded to

board-level changes, even as CEO Bob Jordan stayed put.

Elliott showed its appetite for rapid change again this week,

when Reuters and other media reported the fund had increased its

stake in U.S. refiner Phillips 66 to $2.5 billion from

$1 billion last year.

Phillips 66 had already laid out a performance improvement

plan to boost shareholder returns and share price. Now, Elliott

wants to push for operational changes and the sale of the

company's midstream business as well.

In a 2017 interview, Elliott founder Singer, now 80, told

private equity executive David Rubenstein that he approves every

meaningful position the firm takes.

For companies who become Elliott's activism targets, Singer said

it is good to know that their executives listen "with the

understanding we are real and have the capacity to carry through

on our projects."