The high-tech engineering and manufacturing firm hived off from Alcoa last year, Arconic Inc. (NYSE: ARNC), announced Monday morning that Chairman and CEO Klaus Kleinfeld has resigned both positions, along with his membership on the company’s board of directors. Board member David Hess will serve as interim CEO, and lead director Patricia Russo will serve as interim board chair.
Arconic completed its separation from Alcoa in November 2016, when the former Alcoa changed its name to Arconic and Alcoa Corp. (NYSE: AA) began operating the former company’s bauxite, alumina, aluminum, cast and rolled products, and energy businesses. Arconic maintained a 19.9% stake in Alcoa Corp.
But trouble arrived nearly as soon as the separation was announced. Demand for commercial passenger planes began to slip, and that was the market that Arconic was primarily designed to serve.
Activist investor Paul Singer and his Elliott Management, which had held a stake in the old Alcoa, had acquired a 13% stake in Arconic by February and almost at once nominated five people to Arconic’s board and called for Kleinfeld’s firing.
In a filing Monday morning with the U.S. Securities and Exchange Commission (SEC), Elliott underlined its “suggestion” that Arconic hire former Spirit Aerosystems Inc. (NYSE: SPR) CEO Larry Lawson to be Arconic’s CEO. The full presentation is available here.
In a press release announcing Kleinfeld’s departure, Arconic said:
Mr. Kleinfeld stepped down as Chair and CEO by mutual agreement after the Board learned that, without consultation with or authorization by the Board, he had sent a letter directly to a senior officer of Elliott Management that the Board determined showed poor judgment.
Importantly, 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. …
Elliott Management’s central objective – a CEO change – has been realized at Arconic. With the completion of Arconic’s transformative separation transaction last November, the substantial refreshment of its Board composition with seven of its twelve directors having joined the Board since the beginning of last year, and now the departure of Mr. Kleinfeld as CEO and Chair of the Board, it is clear that the Company has recently undergone a tremendous amount of change. 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.
It’s a bit unclear to us why Elliott would want to kiss and make up now. If Elliott wants Lawson in the corner office, it’s more than halfway there. Why compromise now?
Arconic’s stock traded up about 7.7% after less than an hour of trading Monday, at $27.90 in a range of $16.75 to $30.69. The 12-month consensus price target is $28.75.