Weak Shares Arconic Investors Move for Mutiny

Shareholders of manufacturing firm Arconic are unhappy with the company's German boss. Behind the charge, is the hedge fund of American billionaire Paul Singer.
Quelle: Bloomberg
Arconic chief executive Klaus Kleinfeld is losing support from investors.

It was late Tuesday evening in New York, shortly before the engineering and industrial firm Arconic would announce its annual figures, when its investors lashed out at the chief executive. They are accusing Klaus Kleinfeld of wasting money and missing the mark, according to a Wall Street Journal report.

The attack comes three months after Mr. Kleinfeld completely reorganized the enterprise. On November 1 of last year, Arconic was officially split off from another publicly traded company, the 128-year-old aluminum manufacturer Alcoa. Mr. Kleinfield, who took over Alcoa in 2008, decided that aluminum would continue to be produced under the parent company while Arconic would be responsible for aircraft and automobile construction, and producing other metals such as titanium. Mr. Kleinfeld's hope was to capitalize on manufacturing sector, seeing a greater potential for its growth than in aluminum production.

Investors were initially enthusiastic about the spin-off. But then Arconic's share prices barely grew, while Alcoa’s shot up. Alcoa is still in the red, but increased its revenues in 2016 more than expected. The company is dependent on the fluctuating cycle of commodity prices and it is also under big pressure from Chinese competition.

01 p18 Arconic and Alcoa-01

Investors are worried about Alcoa, but even more so Arconic which Mr Kleinfeld hoped would be a wunderkind. The lion's share of criticism is coming from the hedge fund Elliott Management, founded by American billionaire Paul Singer.

Before Christmas, the hedge fund, which owns a good 10 percent of Arconic shares, submitted a comprehensive report to the supervisory board listing numerous complaints, from overly expensive acquisitions to the weak development of share prices. Even trivial matters such as the company's advertising campaign were taken issue with, specifically a commercial made by "The Fast and the Furious" director Justin Lin which reportedly cost an arm and a leg.

Some of Elliott's disapproval is justified.  For example, Alcoa's takeover of the British company Firth Rixson in 2014, which cost nearly $3 billion for the manufacturer of aviation components, and the deal has not paid off so far. But Mr. Klenifeld has defended the acquisition, saying that a presence in the European aviation market was important, perhaps even vital, in the long-term.

The hedge fund has three candidates for election to the supervisory board and despite the tension, they appear to be with the board in supporting the boss. The board has stated that Mr. Kleinfeld had already created “significant value” for stockholders with his reorganization, and that “management has shown tireless commitment to cutting costs and increasing productivity.” Elliott did not reply to a Handelsblatt's query on the subject.

The supervisory board met on Sunday to discuss the Elliott report, and the hedge fund managers were present. The fact that the criticism aired in that meeting has been leaked to the public may be a tactic for increasing the pressure to oust Mr. Kleinfeld.

 

Thomas Jahn and Frank Wiebe are Handelsblatt’s New York correspondents. To contact the authors: [email protected][email protected]