Paul Singer's Elliott Management jumped on board Alcoa (AA) prior to the metals giant's split into two independent companies, agreeing last February to a deal that gave it three director seats. Though the split was completed Nov. 1 Elliott is still apparently pushing for changes, establishing a growing stake in the now-independent finished products company Arconic (ARNC) .
Elliott in a Schedule 13D filed Nov. 2 said it has increased its interest in the company from 7.5% to 9%, saying that following the separation it believes Arconic's shares "are dramatically undervalued and represent an attractive investment opportunity." The firm said it intends to engage in private discussions with the company within the framework of the February agreement regarding how to improve operating performance and build value.
It is not uncommon for an activist to push a spun off business to seek a buyer, but in the case of Arconic it is unclear how far Elliott will be able to push. According to an ISS Quickscore report obtained by The Deal the board is set up for staggered elections, meaning investors would not be able to take control of the board in one annual election. Additionally, the backing of 25% of shares is needed to convene a special shareholder meeting.
Elliott could have some help should there eventually be a proxy fight, as activists Highfields Capital Management and Orbis Investment Management, among others, are rumored to be in the stock as well. But Arconic is already heavily indebted, taking on all of Alcoa's $9 billion in total debt and $3 billion of the combined $5.6 billion in pension obligations at the time of the split, and appears more focused at present on balance sheet repair than it is special dividends or other substantial cash returns to investors.