Arconic (ARNC)

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Elliott Management will likely wage proxy campaign to shake up Arconic

https://nypost.com/2019/01/24/elliott-management-will-likely-wage-proxy-campaign-to-shake-up-arconic/

So you want to protect your retirees’ pensions? That could get you into trouble with the state of Delaware.

Elliott Management — reeling from the surprise rejection of a $10 billion takeover offer for aluminum giant Arconic earlier this week — is discussing a surprising legal argument to revive the deal, The Post has learned.

Specifically, the activist hedge fund headed by billionaire Paul Singer believes that New York-based Arconic decided to reject the bid from buyout firm Apollo Global Management partly because it didn’t adequately cover the company’s pension obligations, according to sources close to the situation.

On the face of it, looking out for workers might have seemed like the right thing for Arconic to do. But legal experts say it conflicts with the law in Delaware, where Arconic is incorporated, which requires boards to focus exclusively on the interests of shareholders, informed sources said.

Sources said the brewing showdown got foreshadowed in 2017 when Elliott successfully pressured Arconic to incorporate itself in Delaware instead of Pennsylvania — largely so that its board would be forced to prioritize shareholders in any takeover situation.

Nevertheless, in its Tuesday rejection of Apollo’s takeover bid of $22.20 a share — an announcement that blindsided both Elliott and Apollo, according to sources — Arconic said it didn’t get an offer that was “in the best interests of Arconic’s shareholders and other stakeholders.”

A source close to the situation said Elliott “saw the line in the Arconic release about protecting stakeholders and thought it was dumb,” signaling that it looked like legal fodder for Elliott and Apollo.
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In a landmark 1986 decision on hostile takeovers, the Delaware Supreme Court ruled that “concern for non-stockholder interests is inappropriate when an auction among active bidders is in progress, and the object no longer is to protect or maintain the corporate enterprise but to sell it to the highest bidder.”

Now, insiders say Elliott will likely wage a proxy campaign to shake up Arconic’s board. The deadline to nominate directors is Feb. 15.

Arconic’s pension deficit was projected to be $2.5 billion at the end of 2017, according to securities filings. In 2016, Arconic pumped $150 million into its retirement plans as the US Pension Benefits Guaranty Corp., a watchdog agency, voiced concerns about Arconic’s debt load.

Sources said Arconic board members had been concerned that Apollo’s proposal to fund the company’s pensions was about a third less than what it believed was necessary — a shortfall amounting to hundreds of millions of dollars.

As reported by The Post, negotiations had likewise been clouded in recent weeks by liability concerns related to a UK-based Arconic unit, whose construction panels got blamed for the quick spread of the 2017 fire in Grenfell Tower in London that killed 72 people.

Arconic directors also had been concerned that Apollo wouldn’t pay out a $29 million dividend to shareholders after the deal was announced, sources said.

Apollo, Arconic and Elliott declined to comment.