Arconic Triggers Secret “Poison Put” – A Costly Change of Control Provision That Was Hidden from Shareholders
Arconic CEO’s Latest Entrenchment Mechanism Leaves Shareholders Asking, What Governance Horror Could Possibly Be Next?
The facts are these:
- According to last night’s disclosure,
ArconicCEO Klaus Kleinfeldand/or the Arconic Board yesterday triggered the potential for a $500 millionliability should Elliott succeed in its efforts to elect four independent, highly qualified nominees to the Arconic Board (the “Hidden April Poison Put”).
- There was no obligation on the Company to trigger this provision. In fact, prior to its decision to trigger the Hidden April Poison Put, the Company retained the right to amend the provision at any time it wanted.
- With the stroke of a pen,
Arconiccould have spared shareholders from the specter of this $500 millionliability. Instead, Dr. Kleinfeldand/or the Board have deliberately set in motion this razor-sharp pendulum with less than five weeks to go before the May 16vote.
Dr. Kleinfeldand/or the Board inflicted this potential liability on Arconicshareholders in an act of desperation as a way to entrench themselves, as perhaps they sensed this contest slipping away. There is quite simply no other plausible explanation for the decision.
Elliott believes that the election of its nominees will not trigger the change in control provision at the heart of the Hidden April Poison Put. Furthermore, multiple legal avenues exist to protect the voting rights of all
First, it is clear that this action was taken for entrenchment purposes in violation of fiduciary duty.1 The only question outstanding is who was involved? Did
- This potential liability was not disclosed in
September 2007, when it was included in the trust agreement between Mellon Bank, N.A.and Alcoa Inc.;
- It was not disclosed when Elliott filed its 13-D in
November 2015– the supposed triggering event for the “Potential Change of Control” at the heart of the Hidden April Poison Put; and
- It was not disclosed in the Company’s
March 13, 2017Definitive Proxy Statement for the upcoming annual meeting. What other material facts did the Company fail to disclose?
This two-step process – an entrenchment action followed by an egregious failure to disclose the action – has become a familiar pattern at
Last week, we launched a clearinghouse for information about the Secret August Voting Lock-Up on NewArconic.com, where we continue to ask: If the Company has nothing to hide, why the continued obfuscation? If the Board truly believes this is a non-issue, then why not come clean to shareholders and provide a full explanation to put the issue to bed?
The Hidden April Poison Put and the Secret August Voting Lock-Up are only the latest and most disturbing additions to the numerous other outdated and substandard corporate governance practices lurking in Dr. Kleinfeld’s
- A staggered Board which, management and the Board’s protestations to the contrary notwithstanding, the Company has made no serious effort to de-stagger;
- A combined CEO and Chairman role;
- The allowance that the Chairman/CEO can serve on multiple outside corporate and non-profit boards as well, which he does;
- A super-majority voting threshold to remove directors or amend the corporate charter;
- A “Lead Independent Director” who is not truly independent, but rather is overseen by
Dr. Kleinfeldon another board where she is Chairman;
- A total disconnect between pay and performance, resulting in CEO compensation of
$128 millionover nine years despite abysmal operational performance and shareholder returns; and
Pennsylvaniaincorporation, as opposed to reincorporation in a more shareholder-friendly jurisdiction such as Delaware.
After all this, what governance horror could possibly be next?
1 As the
2 See Item 6(d) of Schedule 14A and Regulation S-K 402 and 403.