Elliott Seeks Ouster of CEO at Former Alcoa Unit Arconic

  • Hedge fund starts proxy fight with five nominees to board
  • Arconic CEO Klaus Kleinfeld is underperforming, Elliott says

Elliott Management Corp. called for the ouster of Klaus Kleinfeld, chief of executive officer of Arconic Inc., setting the stage for a battle over control of the aluminum-parts maker that split from Alcoa Corp. last year.

The company should consider replacing Kleinfeld with Larry Lawson, former CEO of Spirit AeroSystems Holdings Inc., whom Elliott has hired as a consultant, the New York-based hedge fund said in a presentation Tuesday. Elliott, run by billionaire Paul Singer, also announced five nominees to Arconic’s board.

Elliott’s concerns about Kleinfeld have been brewing since at least last year. Days after Arconic shares began trading as a separate company on Nov. 1, Elliott said it had increased its stake and planned to discuss with the new company how to improve performance. The hedge fund is Arconic’s largest stockholder with 10.5 percent of shares outstanding and already has three representatives on the board, carryovers from Alcoa. A successful proxy fight could give it a majority.

“Despite years of poor performance, a culture of grandiose rhetoric devoid of any real substance or follow-through has been tolerated,” Elliott said in the presentation. “We are seeking sustained improvements at Arconic to benefit all long-term stakeholders.”

The stock could trade for $33 to $54 a share after making changes to operations, capital allocation and strategy, Elliott said in a statement after the close of regular trading. The shares rose 1.6 percent to $23.15 at 5:35 p.m. in New York.

Arconic said its board, which consists of Kleinfeld and 12 directors, “unanimously supports” management.

“The board has conducted an intensive and extensive review of Elliott’s allegations and has concluded that many of them are misleading or not substantiated,” the company said in a statement.

Kleinfeld Strategy

The corporate split marked the culmination of a strategy pursued by Kleinfeld, 59, who took the reins at Alcoa in 2008 before engineering the carve-out of Arconic. The former Siemens CEO relentlessly emphasized Alcoa’s focus on value-added aluminum products while cutting costs at a commodity-aluminum business that was once the world’s largest by volume.

Lawson, 58, a veteran of Lockheed Martin Corp., has a reputation as a tough manager who gets results. He led Lockheed’s F-35 fighter program and ran its aeronautics division before joining Spirit AeroSystems as CEO in 2013.

Lawson caught analysts off guard in June with an announcement he would retire from Spirit the following month after turning around the aerospace supplier. Under his watch, net income more than tripled as the company expanded its relationship with Airbus Group SE and shed an unprofitable wing production business.

Lawson Record

But several key executives also departed in Lawson’s last months amid an impasse on a contract agreement with Boeing Co. and a “seriously fractured” relationship with the planemaker, Carter Copeland, an aerospace analyst with Barclays Capital Inc., wrote in a June 9 report. Shareholders admired the CEO for his results “but we get the sense that the employee base doesn’t love Larry Lawson as much,” Copeland wrote.

Elliott’s nominees to the Arconic board, all former CEOs of the companies listed, are Christopher Ayers of WireCo WorldGroup Inc.; Elmer L. Doty of Accudyne Industries; Charles M. Hall of AM General; Bernd F. Kessler of SRTechnics AG; and Patrice E. Merrin of Luscar Ltd.

Along with Lawson, Ayers and Doty have deep experience dealing with Boeing, the world’s largest planemaker and Arconic’s largest customer, according to a Bloomberg supply-chain analysis.

Elliott Activism

Elliott has been one of the busiest activist investors under its head of U.S. equity activism, Jesse Cohn. Already this year, Elliott disclosed new positions in power producer NRG Energy Inc. together with Bluescape Energy Partners, and in health-care services and software group Advisory Board Co.

Elliott also welcomed oil refiner target Marathon Petroleum Corp.’s announcement it would accelerate a sale of assets to its master limited partnership and consider a spinoff of its gasoline and convenience stores.

While most of Elliott’s investments aren’t active -- where it amasses shares and seeks to convince executives and directors to make changes to boost shareholder returns -- it’s those campaigns that often attract the most attention. Elliott recently also went active at South Korean conglomerate Samsung Electronics Co.

— With assistance by Joe Deaux, and Beth Jinks

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