Arconic Provides List of Questions for Investors to Ask Elliott Management

Arconic today provided a list of questions for investors to ask Elliott Management ("Elliott"), which is seeking to elect four directors to the Board of Directors of Arconic at the upcoming Annual Meeting of Shareholders, to be held on May 16, 2017. In particular, Arconic suggests that all shareholders ask Elliott questions on these important points:

1. After three directors on Arconic's Board were added last year at Elliott's recommendation, Elliott has now nominated four more directors.
   
   Question: How are other shareholders' interests served by giving Elliott, a 13.2% shareholder, the privilege of nominating seven of Arconic's 13 directors?
2. Elliott suggests that Arconic's Board install Larry Lawson as the new CEO of Arconic. Mr. Lawson has a non-compete agreement with his prior employer that legally restricts him from serving as Arconic's CEO. In fact, Mr. Lawson's prior employer has stated that he is already in violation of the agreement due to his involvement with Elliott.
   
   Questions: Does Elliott believe that Mr. Lawson should violate his contractual commitment to his prior employer? Is Mr. Lawson treating his prior employer ethically by violating his non-compete agreement by offering to work for Arconic?
3. Mr. Lawson is on Elliott's payroll. In fact, Elliott has already paid Mr. Lawson approximately $6.6 million in consulting fees and indemnification for breaching his non-compete agreement. In total, Elliott has agreed to pay him approximately $28 million over the course of the next two years, regardless of whether Mr. Lawson becomes Arconic's CEO.
   
   Questions: Aren't other shareholders' interests best served by assigning the full Board the responsibility of selecting the CEO? Why should that be Elliott's privilege? How would Elliott propose to resolve the apparent conflict of interest caused by appointing a CEO to whom it is paying tens of millions of dollars on the side?
4. When Elliott began its proxy contest, it produced an analysis indicating that it thought Arconic's Global Rolled Products ("GRP") division, which generated EBITDA of $577 million in 2016, could increase its EBITDA by $750 million. Within a matter of days, Elliott issued multiple revisions of its analysis and now seemingly believes that EBITDA can only be expanded by $245 million.ⁱⁱ
   
   Questions: Does the same prescription apply to a division that has an opportunity to increase EBITDA by 42% as one that could more than double its EBITDA? In light of Elliott's admitted, significant analytical error, how can shareholders rely on Elliott's analysis or plans for Arconic's future?
5. Elliott has compared Arconic's Engineered Products Solutions ("EPS") business to that of Precision Castparts ("PCC"). However, EPS is significantly smaller than PCC and does not participate in some of the higher margin segments in which PCC is a market leader. Cowen and Companyⁱⁱⁱ recently published a report noting "the benchmark that Elliott cites is an unrealistic bar."
   
   Questions: Are Elliott's conclusions about margin potential and underperformance well informed? How specifically does Elliott suggest that EPS, despite being much smaller and not participating in some high margin segments, close the margin gap to PCC?
6. Klaus Kleinfeld was appointed as CEO of Alcoa Inc. when the Company was highly levered and the price of aluminum was near an all-time high. In the nine months thereafter, aluminum prices collapsed and Alcoa Inc.'s stock price fell dramatically. Since then, shareholders of Alcoa Inc., now Arconic, have seen Total Shareholder Return ("TSR") of 182%^iv, as the Company generated $8 billion in shareholder wealth in eight years.ⁱ Alcoa Inc. shareholder return also outperformed both the S&P 500 Metals & Mining Index and the overall S&P Metals & Mining Index since 2009.^v Alcoa Inc. was included in these two indices from 2009 until the separation in November 2016, and unlike the broad S&P 500 index, these indices include companies where earnings power and share prices are highly correlated to underlying commodity prices, making these indices the appropriate benchmark for comparison.
   
   Questions: How can Elliott ignore the impact of the global financial crisis when evaluating Alcoa Inc.'s shareholder returns? How does providing a comparison to (i) broad market indices that are not directly levered to commodity pricing or (ii) companies that were not comparable to Alcoa Inc. for the vast majority of the time period provide shareholders with any insight into Alcoa Inc.'s relative performance? Shouldn't Elliott focus on relative performance to indices that include large-scale commodity producers with share price correlation to commodity markets (i.e. S&P Metals & Mining and S&P 500 Metals & Mining indices)?
7. Elliott has commended Alcoa Inc. for separating its business into two publicly traded companies, Arconic and Alcoa Corporation. Indeed, Elliott said that Alcoa Inc. would not be fully valued unless the Company took action to split its businesses into two public companies. Now, however, Elliott is using TSR data that deliberately excludes the value created by the separation by measuring Mr. Kleinfeld's performance (and the Alcoa Inc. stock performance) only until the day before the split into two public companies.
   
   Questions: Why should shareholders ignore the value created by the successful separation of Arconic and Alcoa Corporation in calculating the value created by the current leadership team? Isn't it disingenuous to suggest that shareholders ignore the successful culmination of the strategic transformation of Alcoa Inc. that was executed by Mr. Kleinfeld and the rest of the management team under the oversight of the Board?
8. The current management team, led by Mr. Kleinfeld, has a strong track record of performance that has been demonstrated before, during and after completing the highly complex separation of Alcoa Inc. Following actions taken to save Alcoa Inc. during the global financial crisis by reducing costs and strengthening the balance sheet, the management team executed a complex transformation of the upstream and downstream businesses. The transformation built Arconic into the company it is today, completing divestitures, organic growth projects and acquisitions to focus on the high growth, high value aerospace and automotive markets. Leadership created a successful culture of innovation and technology, with a strong focus on cost competitiveness and established deep customer partnerships that are the lifeblood of Arconic. Arconic's major customers, including Airbus, Boeing, GE and United Technologies have all expressed their strong support for Mr. Kleinfeld and his continued leadership of Arconic.
   
   Question: Why aren't shareholders' interests best served by a management team with a strong and proven execution-focused track record? Wouldn't critical customer relationships be jeopardized by a change in leadership and strategy as Elliott is proposing?
9. Arconic has a substantially new Board; seven of its 12 independent directors have joined the Board in the last 15 months. Three of those directors were added at the recommendation of Elliott. Directors have met with Elliott, other shareholders, customers, suppliers and employees. The Board has engaged in extensive analysis of Elliott's claims and of the strategy, performance and leadership of Arconic.
   
   Questions: Why should shareholders doubt the judgment of highly qualified independent directors who have worked diligently to evaluate Elliott's claims and have access to information that Elliott does not? Why aren't shareholders best served by these independent directors, a majority of whom are new, three of whom were recommended by Elliott, and all of whom concluded that Arconic has the right strategy and the right leadership?

​Source: http://www.arconic.com/global/en/home.asp