Letter to activist investor leads to Kleinfeld's ouster as CEO of Arconic
The letter at the center of former Arconic CEO Klaus Kleinfeld's ouster from the specialized aluminum manufacturer wasn't just poor judgment; it was a threat, according to a hedge fund that received the correspondence and has sought to shake up the company's leadership.
Elliott Management Corporation, a New York-based investment firm headed by billionaire and activist Paul Singer, called Kleinfeld's letter to a senior officer at the fund “highly inappropriate behavior” in a statement the firm released Monday afternoon .
“The letter read as a threat to intimidate or extort a senior officer of Elliott Management based on completely false insinuations, a threat that we took seriously and about which we immediately and privately informed the Board” the hedge fund said in the statement in which it further criticized Arconic's board for standing by and supporting Kleinfeld. “This letter cannot be viewed in isolation. It is simply the latest debacle in a pattern of conduct in which the Board has repeatedly excused, endorsed, and participated in Dr. Kleinfeld's poor leadership and attempts to entrench himself and his allies on the Board. When such conduct manifests itself in a pattern as it has here, it is not a CEO problem. It is a Board problem.”
The last sentence was in bold and underlined in the statement.
Arconic announced Monday that Kleinfeld had stepped down as chairman and CEO of the Alcoa spinoff company. The decision was mutual, officials said, but came after members of the Arconic board of directors learned that Kleinfeld sent a letter to Elliott Management, the company's largest shareholder, without telling them. The company said the decision was not made in response to Elliott Management's campaign against Kleinfeld and Arconic's leadership.
Kleinfeld “showed poor judgment,” Arconic said in a statement. A spokeswoman at Arconic declined to say what was in the letter. Elliott Management did not release further details on what was in the letter.
Arconic stock jumped 9 percent soon after the news broke and ended the day 3 percent up.
Elliott Management started a campaign to replace Kleinfeld and install five new members on Arconic's board in January. The firm blamed Kleinfeld for Arconic's poor performance, even after the company split from Alcoa on Nov. 1 .
Alcoa operates as an aluminum production business, staying true to the company's mining and smelting roots, while Arconic develops aluminum and other advanced metal parts for airplanes, jet engines, cars and trucks.
Both Alcoa and Arconic are headquartered in New York, but Alcoa has been a familiar name in Western Pennsylvania for more than 120 years. The logos of both companies sit atop the North Shore Corporate Center along the Allegheny River when both companies share space. Arconic operates the Arconic Technology Center in Upper Burrell. There are about 1,700 Arconic employees in Pittsburgh and 300 Alcoa employees.
“The Board is focused on hiring a world-class CEO to lead Arconic into its next chapter. We are focused on ensuring a smooth leadership transition for our customers, employees and many stakeholders,” Patricia Russo, interim chair of Arconic, said in a prepared statement. “The Board is deeply grateful to Klaus Kleinfeld for his dedication and service as Chair and CEO of Arconic, and previously of Alcoa Inc., and appreciates his assistance with this transition. Klaus led a complex and highly successful transformation of Alcoa Inc. that culminated in the launch of two strong, standalone companies - Alcoa Corporation and Arconic. Today, Arconic is a leading advanced manufacturer of highly engineered products with strong market positions.”
Arconic board member David Hess, will serve as interim CEO.
“I have had the honor and the privilege of working with so many talented and dedicated colleagues at Alcoa Inc. and now at Arconic,” Kleinfeld said. “Together we have accomplished a lot. Today, Arconic is well positioned for the next phase. I am committed to supporting David and the Board through this transition phase.”
Elliott Management seized on Russo's support of Kleinfeld as further evidence that the board “simply lacks the judgement to steward Arconic,” the firm said in its statement.
Elliott Management claims to own 13.2 percent of Arconic. Other reports indicate the firm has an 11.6 percent stake in the company. Elliott Management said it will continue its campaign seeking changes to the board “as vigorously as ever.”
“Clearly, this board is a poor judge of character and doesn't even appear to understand how profoundly it has failed Arconic's shareholders and employees,” Elliott Management said.
The Associated Press contributed. Aaron Aupperlee is a Tribune-Review staff writer. Reach Aupperlee at email@example.com or 412-336-8448.