Media (Updated March 10, 2017)

“The ultimate question for shareholders is really Kleinfeld or not Kleinfeld.”

– Brooke Sutherland, Bloomberg Gadfly

It is hard to see him [Dr. Kleinfeld] surviving. Most chief executives who fight vicious shareholder battles are unable to hang on — and even those who win such a contest depart shortly thereafter, as did Ellen Kullman at DuPont. That’s the price chief executives pay for their high compensation — in Mr. Kleinfeld’s case as much as $18 million in recent years.” –Steven Davidoff Solomon, The New York Times

“The key plans of installing a new CEO, a fresh face, could help spur long-term growth.” –Seeking Alpha

“Arconic, meanwhile, has disappointed on quarterly results both as a spinoff and before. Elliott complains of high corporate spending, like a corporate marketing campaign that plays off the 1960s cartoon “The Jetsons” and an expensive headquarters in Lever House on Park Avenue in Manhattan. (The company inherited the building in the split.) While Arconic is spending too much, Elliott says the new Alcoa is busy cutting costs.

–Steven Davidoff Solomon, The New York Times

“Analysts have increased their estimates for Arconic’s 2018 profits since Elliott started pushing for change”

– Brooke Sutherland, Bloomberg Gadfly

“Beyond just management and board overhaul, the big key is getting a better grasp on spending. This includes its unnecessarily expensive headquarters on Park Ave. in New York City. Out of touch for a company with most of its employees in Pittsburgh.” 

–Seeking Alpha

Other large holders have rallied around the activist’s call for a management shakeup. … First Pacific Advisors, for example, emphasizes value investing and built up a sizable stake in Alcoa Inc. in 2013, according to data compiled by Bloomberg, years before the company separated the Arconic aluminum-parts business from the Alcoa Corp. mining and smelting operations. It’s now among those calling for governance changes and speaking out against a board it sees as largely not economically aligned with shareholders because of its small collective stake in the company.”

–Brooke Sutherland, Bloomberg Gadfly

“Shareholders have been quick to speak publicly in favor of Elliott’s campaign, notably Orbis Investment Management, First Pacific Advisors and Lion Point Capital.”

–David Carnevali, DealReporter

“Arconic shareholders, such as First Pacific Advisors and Lion Point Capital, have voiced support for Elliott.”

-Tina Wadhwa, Business Insider

“There IS a large margin gap between Arconic’s engineered product business (i.e. aerospace fastening systems and other parts) and that of rival Precision Castparts (owned by Berkshire Hathaway Inc.). Its stock HAS underperformed relative to the Alcoa business it spun off. Kleinfeld SHOULD face questions about why he got 2016 guidance so wrong for Arconic.”

–Brooke Sutherland, Bloomberg Gadfly

“Lawson’s track record of delivering the kind of profitability and stock-price improvements that Elliott and other investors are seeking isn’t in dispute”

–Brooke Sutherland, Bloomberg Gadfly

Elliott has a good case…Investor returns under Chief Executive Klaus Kleinfeld, who took over at Alcoa in 2008 and now runs Arconic, have been poor.”

– Robert Cyran, Reuters Breakingviews

“There looks to be room to cut costs, based on what Alcoa’s chief financial officer said at a presentation in November. He repeatedly pointed out that the separation allowed Alcoa to slash corporate costs, for example, by eliminating stuff like an office in Geneva and ditching private aircraft.” – Robert Cyran, Reuters Breakingviews

“CEO Klaus Kleinfeld never really ushered a return to greatness for Alcoa after the financial crisis.” – Seeking Alpha, Arconic Gets More Interesting

“I think there is a legitimate question that’s being raised by Elliott which is how long before Klaus really delivers versus his peers…I think it would be a better company if the Elliott guys got on this board than this current board.

– Jim Cramer, CNBC Squawk Box (2/1/17)

Lawson has a lot of credibility in the aerospace sector for turning around Spirit, with the company’s stock rising significantly since 2013 when he was installed in the chief executive role.” – Ronald Orol, The Street

Lawson, 58, a veteran of Lockheed Martin Corp., has a reputation as a tough manager who gets results. – Jack Kaskey and Julie Johnson, Bloomberg

Elliott’s disapproval is justified … Alcoa’s takeover of the British company Firth Rixson in 2014, which cost nearly $3 billion for the manufacturer of aviation components, and the deal has not paid off so far.”

– Thomas Jahn and Frank Wiebe, Handelsblatt Global Edition

“At Spirit, which makes aircraft components including the fuselage for the Boeing 737, Mr Lawson was credited with turning round its financial performance.” – Ed Crooks, Financial Times

Research (Updated March 10, 2017)

“A CEO change is inevitable.”

–The Spin-Off Report, By PCS Research Services and Institutional Research Group

“We anticipate volatility around Arconic’s share price as we continue through Elliot’s proxy battle. That being said, we think investors that weather the volatility will be handsomely rewarded, and are strongly recommending Arconic shares for purchase.” 

–The Spin-Off Report, By PCS Research Services and Institutional Research Group

“You see, going back to the days when Arconic was named Alcoa, you’ll see that only between 55%-60% of the eligible votes are cast in ARNC elections. So  let’s say that number is 70% this year.  This means about 306m shares will be cast and Elliott needs a little more than 150m votes to get its nominees elected. As of February 27, it owned 51m shares and had exposure to another ~7m shares through derivatives.  Beyond that, it has support from First Pacific and Orbis, which are good for another ~32m shares. With that total in mind, Elliott is more than halfway to the total it needs

–Don Bilson and Eric Wiley, Gordon Haskett Research

We believe there is substantial room for margin improvement across all aspects of the business and especially in the EPS segment.

– Credit Suisse

“We are increasing our medium term earnings forecasts and our price target to $33 for Arconic, as we now incorporate more substantive cost reductions… Our segment analysis and peer benchmarking suggest more material cost down potential at ARNC and improvements to asset turns as the market recovers. Our analysis skews towards the “low case” of improvement outlined by Elliott in their Jan 31st presentation (newarconic.com) and we see the potential for more radical change both from at a broader portfolio level and with respect to corporate overhead if the shareholder base aligns with Elliott’s views. – Credit Suisse

We see as much as 20% downside if Kleinfeld continues as CEO.

– Gordon Haskett

“EPS and PCC Comparison is Warranted: While ARNC has a relatively small large structural castings business at La Porte (~$300mm), the EPS segment is a global leader in medium sized castings and fasteners. Our analysis suggests EPS should be able to close the gap with PCC to within 100-150bp.” – Credit Suisse

“In our view, a new CEO is an important positive catalyst to more expeditiously improve the company’s operations and increase its margins while rationalizing capital expenditures / M&A opportunities.” – Wolfe Research

“If the company’s largest shareholder is not successful in effecting change, the company’s management may remain entrenched and not realize the margin expansion opportunities as soon as we expect.” – Wolfe Research

“For the EPS segment, Arconic’s margins are on a long term average ~650 basis points lower Precision Castparts and we assume margins improve to that of Precision Castparts.”

– Wolfe Research

“Apart from industry fundamentals improvement, the special situation thesis for Arconic is chiefly a ‘self-help’ story of new leadership more expeditiously improving the cost structure in addition to improving capital allocation… Our analysis suggest fair value for Arconic of ~ $43 if the improvements occurred holding the current fundamentals of the company constant. – Wolfe Research

“We are of the view that there is considerable margin / revenue expansion opportunity at the company as highlighted by our updated bull case ($40 per share). We believe potential opportunities to reach a compromise could possibly be found through asset sales, a bolstered management / board, and / or cost cutting efforts.” – Morgan Stanley Research

“We also acknowledge activism could create an opportunity to highlight value that is even higher at $40 (and in the range of the activist target) to account for significant margin expansion from current levels, premised on a market P/E of 17x and earnings of $2.37.”

– Morgan Stanley Research

“Airframe de-stocking, NA heavy duty truck, and Tennessee Packaging weakness led to a ~9% decline in revenues, even with record auto sheet shipments;” – Morgan Stanley Research

“Rating: Buy…Mid-point of Elliott’s cost-cutting driven EBITDA scenarios implies ~$14/sh upside to DB’s revised $28 Price Target (prior $27) which remains based on 8.5x (unchanged) 2018E EV/EBITDA.” – Jorge Beristain, CFA, Jeremy Kliewer and Chris Terry, Deutsche Bank

Our analysts currently have a price target for ARNC of $36 per share, but that number could be conservative if Elliot is able to make the proposed changes to the board and bring in Larry Lawson as the new CEO, who has an incredible track record of maximizing shareholder value at his previous posts. Despite ARNC running up over 30% since our recommendation, we still strongly recommend purchasing the stock at current levels.”

– The Spin-Off Report, By PCS Research Services and Institutional Research Group

“In line with our analysts, Elliot makes the contention that Arconic’s EPS segment dramatically lags its peers, specifically, Precision Cast Parts (NYSE: PCP), which is a nearly identical business in terms of product mix and end markets. PCP’s EBITDA margins nearly double that of Arconic, and it is the contention of Elliot that the gap should close completely over the next couple of years with a new management team in place.” – The Spin-Off Report, By PCS Research Services and Institutional Research Group