Arconic Reaches Truce With Singer's Elliott Management

May 22 2017 | 5:40pm ET

By Michael Flaherty (Reuters) - Specialty metals company Arconic struck a deal with Elliott Management on Monday, ending a battle for control of the company's board that was days away from culminating in a shareholder vote.

From the start of its public campaign in January, Elliott said Arconic, the $12 billion company that separated from Alcoa Corp last year, needed new leadership and that its performance had missed targets and lagged peers.

Arconic shares could more than triple if the company cut costs and made other operational changes, according to Elliott's presentations. The fund is Arconic's largest shareholder, with a 13.2 percent stake.

The truce takes the drama out of Arconic's annual shareholder meeting on Thursday, as the vote is no longer contested, and the two sides have agreed to terms including the five directors who will stand for election.

Other terms include Elliott's placement on the board's chief executive search committee and Arconic moving to annual board elections.

Elliott invested in Alcoa in 2015, and the company reached a settlement a year later with the hedge fund, which got three directors it supported onto the company's board.

Elliott had taken aim at Arconic's former CEO Klaus Kleinfeld directly, questioning his leadership and management skills. Kleinfeld was forced to resign after sending a threatening letter to Elliott's founder, Paul Singer, which Arconic's board did not approve.

Arconic said last month that Elliott had rebuffed several attempts by the company to reach a settlement.

Elliott had nominated four directors to serve on Arconic's board, pitting them against four of the five company nominees. The activist investor supported one of Arconic's nominees, board member Ulrich Schmidt.

As part of the deal, Elliott will reduce its nominee slate to three directors: Christopher Ayers, Elmer Doty and Patrice Merrin. Arconic will reduce its slate to Schmidt and David Hess, the company's interim CEO.

One of Elliott’s director nominees will be added to the CEO search committee, Arconic's statement said.

Director representation on the search committee was a sticking point in the original settlement talks, the company said last month, as Elliott originally pushed for three of its directors on the committee.

Elliott also wanted majority representation on the board's operating committee, the company had said, an issue that the Arconic release did not mention on Monday.

In addition, Arconic announced that director Rafael Reif, who was not up for election, will step down from the board after the shareholder meeting and be replaced by James Albaugh, one of the nominees on its original slate.

Arconic also said it would begin the process of reincorporating in Delaware, a state that requires company boards stand for annual election. The company has a staggered board, meaning it only puts a certain number of directors up for election every year, a policy that tends to annoy investors that want more board member accountability.

Elliott had disclosed a large stake in Arconic, which provides aluminum and titanium alloys used in planes and cars, shortly after it separated from aluminum maker Alcoa last November, and has since built that stake to more than 13 percent.

The hedge fund launched its director slate at the end of January, officially starting the proxy fight.

Arconic shares closed up slightly to $27.63 in Monday trading.

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