$8 Billion of Shareholder Value Created in 8 Years through Business Transformation and Separation
Independent Directors Address Elliott’s Misleading Statements
Vote “FOR” the Company’s Nominees on the WHITE Proxy Card to Vote “FOR” a Board that Has Created Shareholder Value and Has a Clear Plan for Success
The Arconic (NYSE: ARNC) Board of Directors today issued a new letter to
shareholders. Information regarding the Company’s track record and plan
for continued value creation is available in its presentation to
shareholders dated March 27, 2017. The presentation and other materials
are available at www.arconic.com/annualmeeting.
The Company urges shareholders to vote “FOR” the Company’s nominees and
governance proposals on the WHITE proxy card.
The full text of the letter follows:
April 5, 2017
Dear Fellow Arconic Shareholder:
You have an important decision to make regarding your investment in
Arconic at the upcoming Annual Meeting. The Arconic Board of Directors
and management team are committed to shareholder value creation while
upholding the highest ethical standards and principles of good
governance. We want to ensure shareholders have the facts to make an
informed decision, while Elliott Management continues to make misleading
statements about Arconic.
The Arconic Board and management team have outlined a detailed
roadmap for the future success of the Company that we believe will
enhance value for all shareholders. Core to this strategy is a focus
on the right markets with advantageous growth characteristics – like the
aerospace and automotive industries. We believe Arconic’s expertise in
innovation and strong customer relationships will drive above-market
growth in sales, and the Company will continue productivity enhancements
and cost reduction actions to help drive profits. As a result of the
Company’s leadership team successfully executing the complex, multi-year
transformation of Alcoa Inc., and the launch of Arconic and Alcoa
Corporation, the Company is in a strong position to continue driving
value for shareholders.
What is Elliott doing?
Elliott is promoting a misleading view of Klaus Kleinfeld’s track
record of Total Shareholder Return (“TSR”). In calculating TSR,
three key questions should be asked: What is the start date for the
analysis? What is the end date for the analysis? What are the relevant
indices for comparison purposes?
Regarding the first question, Arconic’s Board determined that the 62
percent1 plunge in the price of aluminum during Mr.
Kleinfeld’s first months as CEO, and the impact of high financial
leverage that Mr. Kleinfeld inherited, resulted in a dramatic stock
price decline that was outside of management’s control. Therefore, our
shareholder return analysis starting point is March 18, 2009, the point
at which Alcoa Inc. was recapitalized.
Second, in terms of end dates, we cannot imagine an analysis that does
not include the separation of Alcoa Inc. into Arconic and Alcoa
Corporation, given that it was a critical milestone in the Company’s
strategic plan that has created significant value for shareholders.
Third, separate from Elliott’s biased selection of start and end dates
for its TSR analysis, we also looked at value creation for Alcoa Inc.’s
shareholders since March 18, 2009, and found that Alcoa Inc. TSR
outperformed both the S&P 500 Metals & Mining Index and the overall S&P
Metals & Mining Index since 2009.2 These well-established
third-party sector indices serve as appropriate benchmarks for
evaluating relative performance, given Alcoa Inc. was included in the
S&P 500 Metals & Mining Index and the S&P Metals & Mining Index every
year leading up to the separation.
The fact is that CEO Klaus Kleinfeld has led Alcoa Inc., now Arconic,
to create approximately $8 billion
3
in
shareholder wealth over the last eight years, reflecting total
shareholder returns of 182 percent.
4 In addition to Alcoa
Inc. creating more value for shareholders than the S&P 500 Metals &
Mining and the S&P Metals & Mining Indices,5 if you
are a new shareholder and invested in Arconic on its first day of
trading on November 1, 2016,6 you have seen a return of 57
percent. Arconic’s performance is significantly better than both the S&P
500 Industrials Index and the S&P 500 Aerospace & Defense Index in that
same timeframe.7
In fact, in a presentation to Alcoa Inc. on November 9, 2015, Elliott
applauded the Board and current Arconic leadership for creating
shareholder value:
“Elliott would like to commend the Board and management team for the
significant steps taken to build a better Alcoa [Inc.] and maximize
value for shareholders.”
8
Has Elliott offered a plan?
It has become increasingly evident that Elliott Management – an activist
hedge fund investor – has no serious plan for the future of Arconic and
instead has relied largely on misleading attacks on Arconic’s track
record. The Board’s extensive review of Elliott’s claims has made it
clear to us that they do not understand Arconic’s business or what is
needed to maximize value for shareholders. In addition to using a
misleading shareholder value creation analysis, Elliott:
- Misuses and misunderstands industry data
-
Compares Arconic to companies that are different in structure or
industry -
Advocates for a CEO who is legally restricted from serving as
Arconic’s CEO -
Fails to appreciate that close, collaborative partnerships with
customers are critical for our future success
Even setting aside Elliott’s many misrepresentations and attacks
throughout its campaign, Elliott has not produced any
operational plan for the future of Arconic.
Does Elliott understand Arconic’s business?
Elliott has shown a clear lack of understanding of Arconic’s business.
Elliott made numerous revisions to its investor presentations to try to
correct its flawed and misleading analysis of Arconic’s business, and it
has concealed the changes. For example, Elliott revised its “perceived
opportunity” in Arconic’s Global Rolled Products (“GRP”) business from
$750 million in cost savings down to $245 million in cost savings, and
it slashed the share price “percentage upside” that Elliott believed it
could deliver from GRP margin improvement by over 65 percent.9
The fact is that this business is already in-line or better than its
10 largest competitors. And, Arconic’s management team has a strategy in
place to further improve the cost and margin structure by approximately
$100 million by 2019.
10
In addition, Elliott compares the profitability of Arconic’s Engineered
Products and Solutions (EPS) segment with the profitability of Precision
Cast Parts (PCP), without acknowledging the significant differences
between the two businesses. In reality, Arconic EPS is different in
scale and business mix to PCP. In most segments where the two businesses
are comparable, Arconic’s margins are in-line or better than PCP’s. In
segments where there are differences, Arconic has been attacking the
margin gap through technology investments, increased capacity
utilization, strategic acquisitions and organic expansions.
A recent report by aerospace analysts at Cowen and Company11
highlighted Elliott’s misleading analysis:
“The margin gap between ARNC’s EPS segment and PCP (F15) cannot be
eliminated for a host of reasons…. In effect, the benchmark that
Elliott cites is an unrealistic bar. ”
It has become clear that Elliott in fact has no idea how to actually
operate Arconic to create value for shareholders.
What is the nature of Elliott’s agreement with Larry Lawson?
It appears that Elliott’s only concrete plan is to replace Mr.
Kleinfeld, Arconic’s current CEO, with Larry Lawson, a former Spirit
AeroSystems CEO, who is legally restricted from serving as Arconic’s
CEO due to a non-compete agreement with his former employer. Elliott
failed to provide the full details of its relationship with Mr. Lawson
when it began calling for him to become Arconic’s CEO. When Elliott’s
agreement with Mr. Lawson was finally made public, it revealed the
troubling fact that if Mr. Lawson became Arconic’s CEO, he would remain
on Elliott’s payroll for years.
In fact, Elliott has already paid Mr. Lawson approximately $6.6 million
in consulting fees and indemnification payments and, in total, Elliott
has agreed to pay him approximately $28 million over the course of the
next two years. Shareholders must therefore ask how Elliott’s proposed
compensation arrangements with Mr. Lawson would influence his actions if
he were to become CEO, and whether he would truly serve the interests of
ALL Arconic shareholders.
Does Elliott’s analysis consider the importance of customer
relationships?
Customers are the lifeblood of our business. Our largest customers, key
to our future success, including Airbus Group, The Boeing Company,
United Technologies Corp., and GE Aviation have proactively expressed
their support for the work Arconic is doing with them, its importance to
their businesses and their respect and support for Mr. Kleinfeld,
Arconic’s CEO:
“What I particularly value is Klaus’ deep understanding of the
critical levers to support OEM goals. As CEO of Airbus, I fully support
his continued leadership of Arconic.”
– Tom Enders, CEO, Airbus Group, March 2017
“Klaus Kleinfeld and his team have…improved our business relationship
by focusing in the right areas, increasing our collective
competitiveness and delivering innovation and greater value to the
customers we serve together.”
– Dennis Muilenburg, Chairman, President & CEO, The Boeing Company,
March 2017
“[We] support Klaus and the rest of Arconic management as they remain
focused on the investments that will secure sustainable, long-term
growth for UTC, for Arconic, and for our entire industry.”
– Greg J. Hayes, Chairman, President & CEO of United Technologies
Corp., March 2017
“Investments in technology and rate readiness are more important than
ever within the supply chains of our growing aviation industry…GE
supports Klaus and the Arconic commitment to those priorities and the
long-term future of our industry.”
– David Joyce, GE Vice Chair and GE Aviation President & CEO,
February 2017
What other misinformation is Elliott communicating?
Because Elliott has no credible plan for Arconic, Elliott has sought to
distract shareholders by mischaracterizing an agreement with Oak Hill.
This is a false claim designed to mislead.
When Arconic and Oak Hill resolved a working capital adjustment relating
to the Firth Rixson transaction in August 2016, one of the many terms of
the agreement was a commitment by Oak Hill to vote its Arconic shares in
the manner recommended by the Arconic Board, which has a fiduciary duty
to act in the best interests of Arconic’s shareholders. No additional
value was given to Oak Hill by Arconic for the voting commitment and Oak
Hill only held about two percent of Arconic’s shares and was free to
sell them – and thereby terminate the commitment – at any time.
In the end, the voting commitment did not have any effect at all. There
was no election of directors or contested vote after it was entered into
and, after carefully reviewing the commitment in the context of the
current proxy contest, management and the Arconic Board decided to
release Oak Hill from its commitment in order to facilitate the fullest
participation by all shareholders in the current proxy contest.
In short, Elliott has made false claims and mischaracterized an
ordinary course agreement in a deliberate attempt to divert attention
away from what is really at stake in this proxy contest: who are the
best qualified director nominees to oversee the execution of the
Company’s strategy to enhance shareholder value.
Arconic’s Board and management offer you a clear plan for the continued
success of the Company and further enhancement of shareholder value.
Elliott offers no operational plan, flawed and misleading analysis, and
an ineligible CEO candidate on its own payroll. We believe the choice
is clear. To protect the future of Arconic and the value of your
investment we urge you to vote the WHITE proxy card TODAY.
Thank you.
| The Independent Directors of Arconic Inc.: | ||||
| Patricia F. Russo, Lead Independent Director | Amy E. Alving | |||
| Arthur D. Collins, Jr. | Rajiv L. Gupta | |||
| David P. Hess | Sean O. Mahoney | |||
| E. Stanley O’Neal | John C. Plant | |||
| L. Rafael Reif | Julie G. Richardson | |||
| Ulrich Schmidt | Ratan N. Tata |
|
VOTE THE WHITE PROXY CARD TODAY |
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Please vote today by telephone, via the Internet or by signing, |
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| If you have questions or need assistance, please contact: |
| INNISFREE M&A INCORPORATED |
| Shareholders Call Toll-Free: (877) 750-5836 |
| Banks and Brokers Call Collect: (212) 750-5833 |
|
REMEMBER: |
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Returning a Blue proxy card – even if you “withhold” on Elliott Management’s nominees – will revoke any vote you had previously submitted on Arconic’s WHITE proxy card. |
About Arconic
Arconic (NYSE: ARNC) creates breakthrough products that shape
industries. Working in close partnership with our customers, we solve
complex engineering challenges to transform the way we fly, drive, build
and power. Through the ingenuity of our people and cutting-edge advanced
manufacturing techniques, we deliver these products at a quality and
efficiency that ensure customer success and shareholder value. For more
information: www.arconic.com.
Follow @arconic: Twitter,
Instagram,
Facebook,
LinkedIn
and YouTube.
Dissemination of Company Information
Arconic intends to make future announcements regarding Company
developments and financial performance through its website at www.arconic.com.
Forward–Looking Statements
This communication contains statements that relate to future events and
expectations and as such constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include those containing such words as
“anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,”
“guidance,” “goal,” “intends,” “may,” “outlook,” “plans,” “projects,”
“seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of
similar meaning. All statements that reflect Arconic’s expectations,
assumptions or projections about the future, other than statements of
historical fact, are forward-looking statements, including, without
limitation, forecasts relating to the growth of end markets and
potential share gains; statements and guidance regarding future
financial results or operating performance; and statements about
Arconic’s strategies, outlook, business and financial prospects.
Forward-looking statements are not guarantees of future performance, and
it is possible that actual results may differ materially from those
indicated by these forward-looking statements due to a variety of risks
and uncertainties, including, but not limited to: (a) deterioration in
global economic and financial market conditions generally; (b)
unfavorable changes in the markets served by Arconic; (c) the inability
to achieve the level of revenue growth, cash generation, cost savings,
improvement in profitability and margins, fiscal discipline, or
strengthening of competitiveness and operations anticipated from
restructuring programs and productivity improvement, cash
sustainability, technology advancements, and other initiatives; (d)
changes in discount rates or investment returns on pension assets; (e)
Arconic’s inability to realize expected benefits, in each case as
planned and by targeted completion dates, from acquisitions,
divestitures, facility closures, curtailments, expansions, or joint
ventures; (f) the impact of cyber attacks and potential information
technology or data security breaches; (g) political, economic, and
regulatory risks in the countries in which Arconic operates or sells
products; (h) the outcome of contingencies, including legal proceedings,
government or regulatory investigations, and environmental remediation;
and (i) the other risk factors discussed in Arconic’s Form 10-K for the
year ended December 31, 2016, and other reports filed with the U.S.
Securities and Exchange Commission (SEC). Arconic disclaims any
obligation to update publicly any forward-looking statements, whether in
response to new information, future events or otherwise, except as
required by applicable law. Market projections are subject to the risks
discussed above and other risks in the market.
Non-GAAP Financial Measures
Some of the information included in this communication is derived from
Arconic’s consolidated financial information but is not presented in
Arconic’s financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP).
Certain of these data are considered “non-GAAP financial measures” under
SEC rules. Arconic has not provided a reconciliation of any
forward-looking non-GAAP financial measures to the most directly
comparable GAAP financial measures because Arconic is unable to quantify
certain amounts that would be required to be included in the GAAP
measure without unreasonable efforts, and Arconic believes such
reconciliations would imply a degree of precision that would be
confusing or misleading to investors. In particular, reconciliations of
forward-looking non-GAAP financial measures such as adjusted EBITDA
margin to the most directly comparable GAAP measures are not available
without unreasonable efforts due to the variability and complexity with
respect to the charges and other components excluded from these non-GAAP
measures, such as the effects of foreign currency movements, equity
income, gains or losses on sales of assets, taxes and any future
restructuring or impairment charges. These reconciling items are in
addition to the inherent variability already included in the GAAP
measures, which includes, but is not limited to, price/mix and volume.
|
1 |
LME aluminum cash price dropped 62% between July 2008 and February 2009. Calculated using data sourced from Bloomberg. |
|
| 2 |
The indices that Alcoa Inc. was included in every year leading up to the separation: S&P 500 Metals & Mining Index and S&P Metals & Mining Index performance reflects the period March 18, 2009 to March 1, 2017. Performance calculated based on closing prices using data sourced from Capital IQ. |
|
| 3 |
Value represents the aggregate change in market value of the total shares outstanding of Alcoa Inc. from March 18, 2009 through March 1, 2017, plus dividends. Analysis begins on March 18, 2009, the day prior to Alcoa Inc.’s recapitalization. Management and the Board took decisive action to stabilize Alcoa Inc. in the face of extreme market headwinds. On March 19, 2009, Alcoa Inc. priced $906M of common equity and $575M of convertible debt, which ensured Alcoa Inc. would have adequate liquidity to survive the 2009 financial crisis. Calculation based on closing prices and reflects Arconic analysis of Capital IQ data. |
|
| 4 |
Represents package value to Alcoa Inc. shareholders from March 18, 2009 through March 1, 2017. Package value to Alcoa Inc. shareholders includes Alcoa Inc. total shareholder return through October 31, 2016. From November 1, 2016 through March 1, 2017, package value to the Alcoa Inc. shareholder is calculated based on the performance of 1 share of Arconic and 1/3 share of Alcoa Corp. On November 1, 2016, as a result of the separation, every shareholder of Alcoa Inc. retained 1 share of Arconic and received 1/3 share of Alcoa Corp. for every 1 share of Alcoa Inc.; the package value calculates the total value to the former Alcoa Inc. shareholder over the specified time period. Calculation based on closing prices and reflects Arconic analysis of Capital IQ data. |
|
| 5 |
The indices that Alcoa Inc. was included in every year leading up to the separation: S&P 500 Metals & Mining Index and S&P Metals & Mining Index performance reflects the period March 18, 2009 to March 1, 2017. Performance calculated based on closing prices using data sourced from Capital IQ. |
|
| 6 |
Performance of Arconic reflects the period November 1, 2016 to March 1, 2017. Performance calculated based on closing prices using data sourced from Capital IQ. |
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| 7 |
The indices that Arconic has been included in since the separation: S&P 500 Industrials Index and S&P 500 Aerospace & Defense Index performance reflects the period November 1, 2016 to March 1, 2017. Performance calculated based on closing prices using data sourced from Capital IQ. |
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| 8 | Permission to use quotations neither sought nor obtained. | |
| 9 | Elliott Definitive Proxy Statement, filed March 9, 2017, p. 11. | |
| 10 | Based on Arconic GRP 2016 revenue of $4.9B. | |
| 11 |
Cowen and Company equity research report, “ARNC Initiation: PCP’s Margin Bogey is Unrealistic”, March 29, 2017; Permission to use quotations neither sought nor obtained. |
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Arconic
Investor Contact
Patricia Figueroa, 212-836-2758
Patricia.Figueroa@arconic.com
or
Media Contact
Shona Sabnis, 212-836-2626
Shona.Sabnis@arconic.com