Lion Point Tell Its Investors That More Change Is Needed At Arconic

Lion Point Tell Its Investors That More Change Is Needed At Arconic

Lion Point Capital and Elliott Management are fighting a campaign against Arconic, a spinoff from Alcoa. Recently, the war of words between the activist hedge funds and the company reached a new level of bizarre when the former CEO of Arconic sent a letter which seemed to threaten Paul Singer, CEO, Elliott Management. After Elliott had released the letter to the press, Klaus Kleinfeld left Arconic, and an interim CEO has been appointed.

Paul Singer Lion Point Capital elliott management Arconic
By World Economic Forum (Flickr: The Global Financial Context: Paul Singer) [CC BY-SA 2.0], via Wikimedia Commons
Dow Jones noted at the time:

The letter that cost Klaus Kleinfeld his job as chief executive of aerospace-parts maker Arconic Inc. on Monday contained a vague threat toward the billionaire whose hedge fund had been campaigning for Kleinfeld’s ouster.

The letter, sent last week to Elliott Management Corp., referenced the alleged partying of Elliott’s president, Paul Singer, at the 2006 World Cup in Germany, Kleinfeld’s home country.

However, both Lion Point Capital and Elliott do not think the departure suffices and are pushing for new directors when shareholders vote in 13 days. ValueWalk has obtained a copy of Lion Point Capital’s recent quarterly letter where they tell their investors that they think more steps are needed. Below is an excerpt from Lion Point’s April 27th letter.

Arconic

Arconic appreciated during the quarter, generating a gain for the fund. As discussed previously, the company has been the subject of shareholder ire (and the focus of an activist). The situation is simple: the company has world-class assets but has suffered from poor capital allocation, significant and recurring execution missteps, undisciplined spending and miscommunication with the investment community for too long.

Unfortunately, management dug in their heels, and chose to fight a counterproductive proxy campaign, while resisting solutions and ideas that could dramatically improve the company. Not only did management turn a deaf ear to stakeholders, but in a deeply troubling move, management took initial steps to invoke a poison put that could potentially subject shareholders to material liability while serving to further entrench themselves. In a truly bizarre twist, when it looked like leadership change could only be forced upon the company through a shareholder vote at the annual meeting, the CEO stepped down in mid-April. Apparently, the CEO had thought it wise and appropriate to send an opaque but seemingly threatening letter on his personal stationery to the founder of the activist fund, as well as a soccer ball as a memento. The board disagreed.

Regrettably, the board of directors continues to endorse the current operating strategy and defend the track record of the leadership team. We view a mere change in the CEO as insufficient. We will be watching for more substantial corporate governance changes to come in May (or sooner) and we are hopeful that a change in direction will invigorate the company and drive meaningful shareholder returns.

All eyes now are on the May 25th vote, unless we get another odd intermission.

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