Activist hedge fund claims another victim
Who is Elliott Management, the $32 billion activist hedge fund run by Paul Singer that last week forced the resignation of Arconic chairman and CEO Klaus Kleinfeld and is backing PPG’s hostile $26 billion offer for Dutch paint maker AkzoNobel?
If you believe former Argentina president Cristina Fernandez de Kircher, Mr. Singer is a vulture. Martin Guzman, an associate research scholar at Columbia University who was critical of Elliott’s relentless pursuit of Argentina over its defaulted debt, opined that the comparison is “likely unfair to the actual birds.”
If you believe a recent letter Mr. Kleinfeld wrote to Mr. Singer, the hedge fund manager is “a phenomenal soccer enthusiast” who had such an “obviously remarkable time” at the 2006 FIFA World Championships that the memory has “strong potential to become lastingly legendary.”
Mr. Kleinfeld and Argentina have learned you don’t mess around with Mr. Singer or Elliott. The mention of either name sparks fear in the hearts of underperforming, entrenched management everywhere.
In Mr. Kleinfeld’s case, his letter — sent without consulting Arconic’s board or seeking its approval — cost him his job. Elliott accused Mr. Kleinfeld of rehashing events of a decade ago in order to extort or intimidate Mr. Singer. The hedge fund called the epistle a “warped initiative.”
Elliott has been calling for Mr. Kleinfeld’s ouster since it launched a proxy fight against Arconic, the specialty metal parts manufacturer created in November when Alcoa separated its mining, refining and smelting business from its downstream operations. For the last three months, Elliott has been inundating Arconic shareholders with examples of Alcoa’s and Arconic’s abysmal performance under Mr. Kleinfeld. The proxy battle comes to a head May 16 when Arconic shareholders meet in Purchase, N.Y.
Arconic said Mr. Kleinfeld stepped down not because it agrees with the hedge fund’s evaluation of his performance but because the letter “showed poor judgment.”
In Argentina’s case, the country was submitted to humiliations such as Elliott obtaining a court order to detain one of the country’s ships at an African port because of Argentina’s unpaid debts.
Elliot won in the end, collecting about $2.4 billion for Argentina bonds it purchased at the deeply discounted price of $117 million, according to a Washington Post account. While more than 90 percent of the country’s bondholders accepted about 30 cents on the dollar, Elliott and a few other hedge funds refused to go along. They took the matter to federal court, where Argentina finally settled in 2016.
“I think their track record is pretty well-known and pretty well-respected in the institutional investment community,” said Charlie Smith, chief investment officer of Fort Pitt Capital Group in Green Tree.
Malcolm Polley, chief investment officer of Stewart Capital Advisors in Indiana, Pa., said Elliott’s strategy is to invest in undervalued or underperforming assets, then find a way to extract value. In the case of Arconic and AzkoNobel, that means taking large positions in a company and forcing change.
“They’ve taken that same stance with a lot of different companies and countries. Investor activism is just another way of slicing that apple,” Mr. Polley said. “[Mr. Singer] wants people to do what’s in the best interests of investors.”
Elliott’s recent forays include Cognizant Technology Solutions, a Teaneck, N.J., company that announced in February that three board members will relinquish their seats to new independent directors under a “cooperation agreement” it signed with the hedge fund.
Elliott’s activism extends into the political arena. Affiliates of the hedge fund contributed $27.5 million during the 2016 election, according to the Center for Responsive Politics. Beneficiaries included the Senate Leadership Fund, whose website indicates it is dedicated to “breaking down the freedom-choking, job-killing, big-spending agenda of former President Obama and his liberal cronies,” and Our Principles, a super PAC created to thwart Donald Trump’s presidential campaign.
Mr. Singer is also chairman of the Manhattan Institute for Policy Research, a conservative, free market think tank.