Arconic Board Vote to Test Power of Activist Investors
The company’s bitter fight with hedge fund Elliott Management comes to a head this week
The future of Arconic Inc. ARNC 2.45% is up for grabs this week in a tightly fought shareholder vote that will test the growing power of activist investors.
At a shareholder meeting in Purchase, N.Y., Thursday, Arconic shareholders will vote to fill five seats on the company’s 13-member board. They will choose among candidates offered by the company itself and Elliott Management Corp., an activist hedge fund that wants to overhaul the $12 billion maker of parts for airplanes and automobiles.
A board shake-up could have a profound effect on Arconic, formerly part of aluminum giant Alcoa Inc., as the new board will select the company’s new chief executive and determine the company’s trajectory for years to come. It also could have broader implications for activist investors, who have become ever more aggressive in their pursuit of higher returns.
Elliott already has locked up around 20% of the vote. The hedge fund, Arconic’s largest shareholder with an 11.6% stake, has public backing from First Pacific Advisors LLC and Orbis Investment Management Ltd.
It has also won key endorsements from influential proxy-advisory firms. Institutional Shareholder Services Inc. suggested investors vote for two of Elliott’s nominees, while Glass Lewis & Co. backed all four Elliott nominees.
Arconic, meanwhile, has the support of at least one top-15 shareholder, according to people familiar with the matter. And asset manager Douglas C. Lane & Associates has urged its clients to back Arconic’s slate, even though one of its portfolio managers had been critical of the board and former Arconic CEO Klaus Kleinfeld, according to a letter to clients reviewed by The Wall Street Journal. The firm’s clients hold 0.5% in aggregate.
Elliott launched its Arconic campaign in January, just months after the company’s split from Alcoa and a year after it installed three of Elliott’s handpicked nominees on the board.
The hedge fund immediately called for the ouster of Mr. Kleinfeld, citing the company’s lackluster stock performance and missed profit forecasts.
In April, Mr. Kleinfeld resigned from Arconic after sending a vaguely threatening letter to Elliott founder Paul Singer. Yet Elliott pressed ahead with its bid for four board seats, arguing that Arconic’s current directors can’t be trusted to depart from Mr. Kleinfeld’s strategy.
Arconic says it has changed more than nine directors over the past 16 months, including Elliott’s three picks in 2016, and argues that the hedge fund’s attempts to nominate four more directors would give too much sway to a single shareholder.
The company has told shareholders an Elliott win would embolden activists to go too far, criticizing Elliott’s personal attacks on Mr. Kleinfeld.
An Elliott victory, even a partial one, could signal few companies are safe, said Chris Young, a Credit Suisse Group AG banker who advises companies in fights with activists.
“It’s not just let’s fix the basket cases, now it’s let’s make the company the best it can be, even after all the self-help steps,” Mr. Young said. “Now we are on the margins of a new event horizon. Almost any company can be marginally improved.”
Thursday’s vote offers a rare chance to gauge the sentiment of big institutional investors, who collectively control enough shares in most big publicly traded U.S. companies to sway the outcome of board fights.
Though activists in recent years have targeted ever larger companies, it is rare for such campaigns to go all the way to a vote.
DuPont Co.’s 2015 scuffle with Nelson Peltz’s Trian Fund Management LP was the last major board fight to make it to a vote. The chemical company’s shareholders narrowly rejected Mr. Peltz and Trian’s other nominees, which was seen as an endorsement of DuPont’s strategy for the business. Later that year, Ellen Kullman stepped down as CEO after performance slipped, and the company reached a deal to merge with Dow Chemical Co.
The Arconic vote likely will hinge on Vanguard Group, BlackRock Inc. and State Street Global Advisors, index funds that collectively hold some 20% of the company’s stock. Many institutional investors have approached activist fights with trepidation, willing to entertain change but wary of giving hedge funds with shorter time horizons too much power.
Arconic has insisted that its strategy of working closely with customers to win long-term contracts will lead to greater long-term gains. Elliott, for its part, wants to shake up how the company is run, hoping that will lead to more efficient spending and improve stock gains.
Elliott and Arconic each have spent millions of dollars wooing shareholders. Elliott mailed shareholders a video player to watch its pitch. Arconic says in a filing it expects to spend about $17.5 million on the fight.