Billionaire investor Paul Singer is taking flack from Arconic (a manufacturer of metal parts for airplanes and automobiles) after accusing the company's top leadership of buying votes to secure their own position within the company.
Singer, who back in February called for the removal of Arconic CEO Klaus Kleinfeld, was incensed by the company's announcement this week of an agreement with investment firm Oak Hill Advisors, a quid pro quo where Arconic absolved the firm of certain existing debts and Oak Hill agreed to vote with Arconic's management at shareholder meetings for the next two years.
On February 1st, Singer’s hedge fund, Elliot Management, sent a letter to shareholders of the aluminum producer, trying to unseat the company’s current CEO. “The consistent and growing disconnect between Dr. Kleinfeld’s rhetoric and the reality of the business’s performance adds to our and other shareholders’ serious concerns about management’s judgment and grasp of the business,” Dave Miller, portfolio manager of Elliott wrote in the letter.
As reported by the NY Post, the letter came only a day after Arconic released its fourth -quarter earnings. Kleinfeld, defended his company’s performance saying, “I’m very happy that it’s doing so well”. “Let the facts speak,” Kleinfeld said, referring to the metal maker’s earnings.
Releasing those financial claims unilaterally was not management's prerogative, according to Singer's Elliot Management Corporation (EMC), and their failure to disclose the deal immediately constitutes a “breach of fiduciary duty” to their shareholders.
In a statement, EMC demanded an inspection of Arconic's financial records. While Aronic continues to resist efforts to oust Kleinfeld and other members of the executive board, it is perhaps worth noting that Singer himself is famous for his tenacity. In 2016, he made headlines as one of a handful of “holdouts” to reach a tentative agreement with the Argentinian government over billions of dollars in sovereign debt going back 15 years.
In fact, much of Singer's fortune was built on purchasing distressed debt from companies and national governments and going after them for payment. For this, critics have dubbed him a “vulture capitalist,” and EMC a “vulture fund.” Of course, even vultures play a much needed role in the ecosystem, or, as Singer himself put it, his way of doing business is simply “a fight against charlatans who refuse to play by the market’s rules.” When understood in those terms, his ongoing battle with Arconic, whose top leaders appear to be buying their own jobs at that shareholders' expense, is not only understandable, but laudable.
By: Douglas Myers