The Morning Brief: Arconic CEO Resigns Over Letter to Elliott

April 18, 2017   Stephen Taub

Elliott Management Corp.’s proxy battle with Arconic took an odd twist Monday morning when Klaus Kleinfeld resigned as chair and chief executive officer of the Alcoa spinoff. Board member David Hess was named interim CEO. In a statement Monday, Arconic said Kleinfeld resigned after, "without consultation with or authorization by the board," he sent a letter directly to a senior officer of Elliott Management saying the board showed poor judgment.

"This decision was not made in response to the proxy fight or Elliott Management’s criticisms of the company’s strategy, leadership or performance and is not in any way related to the financials or records of the company," Arconic said. The company added that under Kleinfeld’s leadership it "successfully executed a transformative vision and improved business performance amid a complex market environment." The board "reaffirms the strategy developed" under Kleinfeld, Arconic said.

Arconic also stated in its announcement that "Elliott Management’s central objective – a CEO change – has been realized at Arconic … It is Elliott Management’s decision whether to continue to burden Arconic and its shareholders with its highly disruptive and distracting proxy fight, or to support Arconic in facilitating an effective CEO search and a strong transition."

In response to the announcement, Elliott, which owns a 13.2 percent economic interest in Arconic said in a statement: "The long-overdue departure of Klaus Kleinfeld is a necessary first step on the path to a new, stronger Arconic for shareholders and employees. We are committed to ensuring that Arconic achieves its full long-term potential. Unfortunately, the Arconic board appears determined to remain an obstacle to that worthy goal. The board continues to insist that shareholders trust its judgment and defer to its wisdom in shaping the future of Arconic. But at this critical juncture, Arconic shareholders simply cannot afford to trust this Board’s judgment in shaping the future of our company."

Investors obviously liked Monday’s developments: The stock surged more than 3 percent to close at $26.69. Earlier in the day, it had traded as high as $28.44.

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Shares of Amazon.com rose about 2 percent to close at $901.99 after Credit Suisse raised its price target on the stock from $900 to $1050, even while it lowered its earnings estimates. The move came in advance of the e-commerce giant reporting first quarter results. The investment bank maintained its outperform rating, citing company investments in content, fulfillment centers and data centers. "As far as we are concerned, this push to invest serves as positive demand indicators across its consumer and enterprise-facing businesses," Credit Suisse told its clients in a research note. Amazon.com was the fifth most popular stock among hedge funds at the end of the fourth quarter.

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Credit Suisse also raised its price target on Facebook, the most popular hedge fund stock, from $170 to $175, in advance of the social media pioneer’s release of its first quarter results. "Our conversations with advertisers suggest that Dynamic Ads for Travel (DAT) seem to be gaining traction as marketers in the segment are rotating budgets to Facebook after seeing ROI improvements," the bank states in a research note. Meanwhile, the bank asserts that Wall Street models in general for the company "continue to underestimate the long-term monetization potential of upcoming new products."

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Barclays raised its price target on another hedge fund favorite, Cheniere Energy, the exporter of liquefied natural gas, from $53 to $58 noting that demand for the new supply of liquefied natural gas (LNG) was better than expected in 2016. "We continue to think that crossover point of supply and demand is sometime in 2023," the bank said in a note to clients. At year-end Carl Icahn was the largest shareholder with nearly 14 percent of the shares while Baupost Group was the second largest shareholder. Lone Pine Capital was the tenth largest shareholder. The stock was also the largest U.S. long of Anchorage Capital Group, the company’s fifth largest stockholder, and the second largest long of Valinor Management.


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