LONDON, UK / ACCESSWIRE / February 16, 2017 / Active Wall St. blog coverage looks at the headline from Arconic, Inc. (NYSE: ARNC) and Alcoa Corp. (NYSE: AA). Arconic announced on February 15, 2017, that the Company has sold off majority stake in Alcoa. 23,353,000 shares out of the 36,311,767 shares that it holds in Alcoa was sold for $890 million. The sale represents more than 60% of its holdings in Alcoa. Register with us now for your free membership and blog access at:

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Arconic plans to use the funds from the stake sale for improving its cash position so that it has the flexibility of using the funds to either pay off its debt or buyback its own shares. The timing of the stake sale is at the lowest risk and transaction costs. Apart from this Arconic has certain carry forward tax benefits available in the US which it can offset against any income that is taxable. The Company plans to make the most of the available tax benefits.

Arconic also said that it would manage the remaining stake in Alcoa responsibly and take a decision at the right time when the stock has upside potential.

Background

Aluminium producer Alcoa Inc. was split into two separate entities in November 2016. Alcoa Inc. was rechristened as Arconic and the new spin off business was named Alcoa Corp. After the split Arconic would handle the engineering products for aerospace and automotive businesses and Alcoa Corp. would take over the smelting and refining divisions. Arconic retained 19.9% of Alcoa after the spinoff and 80.1% was distributed amongst the shareholders as per the stock split approved by the Company's shareholders.

Activist investor Paul Singer and his hedge fund Elliott Management is a major stockholder of Arconic. Elliott Management owns more than 12% in Arconic as on February 11, 2017. Since the Alcoa Inc.'s split in November, 2016, Elliott Management started a campaign to oust Arconic's Chief Executive Klaus Kleinfeld.

The Proxy war

In January 2017, Elliott Management announced that it would nominate 5 members to the Arconic's Board and seek the ouster of Klaus Kleinfeld. Elliott Management plans to bring in Larry Lawson, the former Chief Executive of Spirit AeroSystems Holdings Inc. to replace Klaus Kleinfeld. Elliott Management pointed out that Arconic was lagging behind in terms of margins and the stock was undervalued. Roughly translated, Arconic could do with a round of cost cutting to increase share value. Elliott Management feels that if Arconic implements its suggestions then the stock has a chance to reach the target price of $46, which is nearly 50% more than the current price of the stock.

However, Klaus Kleinfeld has the full support of the Board of Arconic including the three independent directors nominated by Elliott Management. On February 06, 2017, the Independent Directors of Arconic Board wrote to Arconic's shareholders reiterating their unanimous support for Klaus Kleinfeld and his ability to lead the Company.

Klaus Kleinfeld took on the contest and questioned Elliott Management's understanding of Arconic's business before launching a proxy fight. A statement was issued by the Company on February 07, 2017, replying to Elliott Management's queries. It read:

"Arconic's Board and management team are committed to protecting and advancing the long-term interests of all of Arconic's shareholders based on sound analysis. The Company believes that Elliott's shifting numbers, data sources and valuations require thoughtful shareholder scrutiny. The Company intends to provide further information on Elliott's other misleading assertions in the near future."

Elliott Management has been accumulating shares of Arconic from the open market. As per the filing with the SEC (Securities Exchange Commission), on February 15, 2017 Elliott Management purchased 289,000 shares of Arconic. Given Elliott Management's modus operandi, it would be interesting to see how the story pans out going ahead.

Stock Performance

On Wednesday, February 15, 2017, the stock closed the trading session at $29.21, declining 1.05% from its previous closing price of $29.52. A total volume of 5.07 million shares have exchanged hands. Arconic's stock price advanced 41.21% in the last month, 53.42% in the past three months, and 27.22% in the previous six months. Moreover, the stock soared 57.97% since the start of the year. At Wednesday's closing price, the stock's net capitalization stands at $12.80 billion.

At the closing bell, on Wednesday, February 15, 2017, AA's stock slipped 1.79%, ending the trading session at $37.87. A total volume of 11.49 million shares were traded at the end of the day, which was higher than the 3-month average volume of 4.17 million shares. In the last month and previous three months, shares of the Company have advanced 16.02% and 27.85%, respectively. Moreover, the stock gained 34.86% since the start of the year. The Company's shares currently have a market cap of $6.77 billion.

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SOURCE: Active Wall Street