Adds details from letter throughout

By Svea Herbst-Bayliss

April 3 (Reuters) - Elliott Investment Management said on Thursday that Phillips 66's PSX.N stock price could nearly double to $200 if the oil refiner sells or spins off its midstream business and puts more focus on refining and enhances oversight.

The activist investor, which owns a $2.5 billion stake in the company, also slimmed down to four the number of directors it plans to nominate to the company's board from seven previously.

"With resolute and decisive action, Phillips 66 is primed to deliver far greater returns for its shareholders than it has over the past decade," the investment firm wrote to other shareholders in a letter on Thursday that was disclosed in a regulatory filing.

But the hedge fund also said "sweeping changes are needed – changes to the company's structure, its operations and its board."

Elliott nominated seven director candidates to the board in early March but had always planned to cut that number to four, according to a source with knowledge of the matter.

Investors will cast votes for directors on May 21 unless the two sides reach an agreement before then.

The candidates include former ConocoPhillips COP.N executives Sigmund Cornelius and Brian Coffman, midstream operator Targa Resources' TRGP.N founder Michael Heim, and Stacy Nieuwoudt, a former energy analyst at hedge fund Citadel.

Elliott said new independent directors are needed to better oversee management and persuade the company to follow through on selling or spinning off the midstream business to focus on refining. It has also criticized the company's governance, where not all directors stand for election annually.

The company declined to comment.

Phillips 66 shares closed 13.6% lower at $107.18 on Thursday after a broad selloff on Wall Street, giving the company a market value of $43.7 billion.

The midstream business, which Elliott believes could command a valuation of more than $40 billion, should be sold or spun off, the letter said, reiterating Elliott's long-held belief.

Additionally, retail operations in Europe, along with its interest in CPChem, a joint venture with Chevron CVX.N, should also be sold, the letter added.

For Elliott, this is the second time battling Phillips 66 after it pushed for strategic improvements in late 2023. In early 2024, the company added a new director, Robert Pease, to the board with the hedge fund's blessing.

Now things have gotten more heated between the director and the activist investor after Pease in a letter to shareholders last week defended the company's performance and called Elliott's activities "inconsistent engagement" and "peculiar." The hedge fund now wants to replace him with the candidates it nominated this year.

Elliott, in its letter to shareholders on Thursday, said it was puzzled after Pease reneged on the governance best practices he told the hedge fund he would pursue. It also said it was patient with Phillips 66 and approached the company anew only after seeing no "demonstrable progress."

(Reporting by Svea Herbst-Bayliss in New York and Vallari Srivastava in Bengaluru; Editing by Shreya Biswas and Jamie Freed)

((svea.herbst@thomsonreuters.com; +617 233 2138; Reuters Messaging: svea.herbst.thomsonreuters.com@reuters.net))