Elliott Backs Off Arconic Valuation Claim a Week Into Fight

  • Hedge fund scales back estimate on former Alcoa unit’s stock
  • Independent directors stand behind embattled CEO Kleinfeld

Just a week into its campaign to overthrow the management of Arconic Inc., Elliott Management Corp. is backing off the most optimistic claims of what the aluminum parts maker could be worth with new leadership.

Arconic, which split from Alcoa Corp. last year, may be valued at $33 to $46 a share, New York-based Elliott said in a presentation filed with regulators Monday. That’s down 15 percent from the high of $54 that the hedge fund projected on Jan. 31 when it launched a proxy fight to oust Chief Executive Office Klaus Kleinfeld, 59, and to get seats on the board.

Elliott, Arconic’s biggest shareholder, says Kleinfeld has hurt shareholder returns at Arconic and Alcoa, which he previously led. The fund wants Arconic to consider replacing Kleinfeld with Larry Lawson, 58, a former CEO of Spirit AeroSystems Holdings Inc. Elliott, run by billionaire Paul Singer, also is nominating five candidates for Arconic’s board.

Monday’s revised valuation stems from Elliott’s reduction in how much earnings can be improved in the rolled-products business, which makes aluminum sheets for airplanes, automobiles and cans. Annual margins in the unit could increase as much as $245 million, according to Monday’s presentation: one-third what Elliott estimated just last week.

Arconic rose 1.2 percent to close at $26.20 in New York. Elliott’s calls for an overhaul last week sent the stock to record highs since it separated from Alcoa in November.

Spokesmen for Elliott and Arconic declined to comment.

Directors’ Letter

Separately, Arconic’s 12 independent directors expressed unanimous support for Kleinfeld. His leadership in splitting up Alcoa into parts maker Arconic and commodity metals producer Alcoa “has enhanced the respective businesses and unlocked substantial value,” the directors said in a letter to shareholders on Monday.

Arconic is targeting compounded annual revenue growth of 7 percent to 8 percent from 2017 through 2019, and aims to generate an improvement in combined segment-adjusted earnings before interest, tax, depreciation and amortization from 17 percent to 19 percent, according to the directors.

Meanwhile, First Pacific Advisors LLC told Arconic’s board that it plans to vote for the slate of dissident nominees and that the current directors should support changes sought by Elliott. Los Angeles-based First Pacific said it owns 20.1 million Arconic shares, or 4.5 percent of the total outstanding.

“A company intending to create value for its owners would not permit the culture of waste and underperformance that exists at Arconic’s head office,” First Pacific partner Brian Selmo wrote in a letter Monday. “We encourage you not to expend resources on a proxy campaign designed to do little more than entrench Arconic’s board and managers.”

Orbis Investment Management Ltd., which manages a portfolio valued at more than $30 billion, including an undisclosed number of Arconic shares, also said it plans to vote against Kleinfeld.

“Unfortunately, we do not believe that Arconic can achieve its long-term intrinsic value under the leadership of Klaus Kleinfeld,” Adam R. Karr, a partner at San Francisco-based Orbis said in a statement Monday.

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