Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Give Arconic Inc. credit for trying to be more shareholder friendly, but the company needs to break out of this pattern of playing catch-up to Elliott Management Corp.

The $12 billion maker of metal parts for cars and airplanes is attempting to fend off Elliott's efforts to replace CEO Klaus Kleinfeld and several members of the board. The situation has become increasingly nasty, with the latest tussle focused on an August 2016 agreement that Arconic entered into with Oak Hill Capital Partners.

Here's the short version: Oak Hill acquired Arconic stock through the 2014 sale of its Firth Rixson aerospace-component business to the company's predecessor, Alcoa Inc. As part of a resolution for working-capital adjustment issues associated with the deal, the private equity firm agreed to some kind of financial settlement and committed to vote its shares in line with the board's recommendations on directors and other matters. The latter part was just disclosed last week.

After Elliott sounded alarms about the arrangement, Arconic said that it was actually going to waive Oak Hill's voting requirement "to facilitate the fullest participation by all shareholders in the current proxy contest."

Follow My Lead
Since Elliott embarked on its campaign to oust Kleinfeld, Arconic has taken a number of shareholder-friendly moves. But it's wound up looking late to the party.
Source: Bloomberg

So … nothing to see here? Actually, there are some outstanding questions. Elliott says management appears to have traded additional economic claims for votes; Arconic says that the voting commitment was added only after the financial terms of the settlement were finalized. But why did it even bother to lock up a voting agreement? What was the rationale?

Elliott asks why something that was agreed to in August was only disclosed in March after the record date for determining which shareholders are eligible to vote at the annual meeting. Arconic says it wasn't trying to hide anything and that it disclosed the deal once it confirmed Oak Hill was a holder as of that date. Because it wasn't in a proxy fight when it secured the voting commitment in August, Arconic didn't think it was material enough to disclose. It's unclear whether the company had an inkling that a fight might be coming. Arconic didn't even split from its mining and smelting operations until November, but Elliott had built up a stake in the company pre-breakup and had registered criticisms over operating margins and corporate governance in 2015.

There's a lot of he-said, she-said going on here. But whichever side you believe, Arconic brought this debate on itself. The company should have known that the Oak Hill voting agreement was going to spark indignation on the part of Elliott and raise questions for other shareholders. If it was planning on dropping the whole thing anyway, why did it only do so after Elliott raised a fuss? At the very least, Arconic missed a PR moment to tout how shareholder friendly it is. This gesture would have been a lot more meaningful if had happened concurrently with the disclosure. Elliott still might have raised questions, but Arconic would be in a stronger position to counter them. 

Instead, Arconic looks like it was caught flat-footed again. The company also came out this month with a slew of proposed corporate governance updates for shareholders to vote on -- many of which Elliott had called for. Maybe Arconic was already thinking about making these changes, but because it was behind the curve on announcing them, the company's not going to get much credit for them in investors' minds.

Arconic is going to have to step up its pace if it wants to stay ahead of Elliott. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Arconic says there were financial terms involved. Per a November regulatory filing, the company disclosed a $20 million favorable post-closing adjustment in connection with the Firth Rixson transaction. 

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