Elliott calls for probe into Arconic vote deal with Oak Hill

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Elliott Management, the activist investment fund, has called for an independent investigation at Arconic, the specialised metals and components group, into a “secret voting lock-up” that could have hampered its efforts to remove Klaus Kleinfeld, the company’s chief executive.
In a letter published on Monday afternoon, Elliott said Arconic’s board owed shareholders a “full, fair and independent accounting” of a commitment from Oak Hill Capital, a private equity firm, to vote in support of directors nominated by the company, including Mr Kleinfeld.

Arconic said on Monday morning that it had waived the voting commitment, which was included in an agreement to resolve a dispute over Oak Hill’s $2.85bn sale of components manufacturer Firth Rixson to Arconic’s precursor company Alcoa in 2014.

The agreement with Oak Hill, which holds about 2 per cent of Arconic’s shares, was agreed last August to resolve a dispute over Firth Rixson’s working capital, but was made public only last week.

Arconic said in its statement that the voting commitment had not previously been disclosed because it had “not been considered material at that time”, but was reported once it became clear that Oak Hill would be able to vote at its annual meeting on May 16.

It also said the voting commitment was made only after the financial terms of the agreement were finalised, and said “no additional value was given for the commitment.” It also pointed out that at the time of the agreement there was no pending proxy contest.

Since that agreement, Elliott, which controls 13.2 per cent of Arconic, has nominated four directors to the company’s board, and recommended that Mr Kleinfeld be replaced, accusing the company’s management of “persistent failure [that] has destroyed considerable shareholder value.”

In its letter on Monday, Elliott suggested that agreeing the voting commitment with Oak Hill was “contrary to law, contrary to [Arconic’s] own Code of Ethics, and contrary to the fundamental principles of shareholder trust.”

It added: “Management has now been caught disregarding its duties to shareholders … If the board fails to promptly take appropriate remedial action, it will have abdicated its most important responsibility.”

The letter, signed by Dave Miller, a senior portfolio manager at Elliott, called on Arconic’s board both to provide a full explanation, and to dismiss anyone who had taken part in negotiating the commitment from Oak Hill, or who had participated in “deliberately hiding” the agreement from shareholders.

Arconic declined to comment beyond its statement. Oak Hill could not immediately be reached for comment.

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