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At first Paul Singer thought it was a joke.

The April 11 letter — sent to the Elliott Management Corp. founder from Klaus Kleinfeld, whom the hedge fund billionaire was trying to oust from his post as CEO of Alcoa spinoff Arconic — made no sense.

The three-paragraph missive mentioned a World Cup match Singer had attended more than ten years ago, and even included a commemorative soccer ball. But in a postscript the letter took a strange turn: “If I manage to find a native American Indian’s feather headdress I will send this additional essential part of the memories. And by the way: ‘Singing in the Rain’ is indeed a wonderful classic — even though I never tried to sing it in a fountain.”

Singer claims he had no idea what Kleinfeld was talking about. But one thing was clear: The letter gave him a crucial advantage in his battle with Arconic, one of the most bruising shareholder activist campaigns in recent memory — and one whose outcome could cement Singer’s reputation as today’s leading activist, a man unafraid to use bare-knuckle tactics in an increasingly gentlemanly game.

With shares of Arconic up 43 percent for the year, April 11 was already an important day for the hedge fund, which has a 13.2 percent stake worth $1.6 billion in the aerospace-parts maker. Around the time the Kleinfeld letter arrived, Elliott’s team on the Arconic campaign was making its pitch to Institutional Shareholder Services (ISS), a proxy adviser whose recommendation can make or break an activist’s effort.

By day’s end Elliott was required to file its presentation — a 322-page PowerPoint deck — with the Securities and Exchange Commission. In it Elliott laid out its case for change, with nine pages of “ethical” concerns about Kleinfeld. The hedge fund insinuated he was involved in a bribery scandal that had wracked Siemens when he was the CEO. (Siemens paid more than $2.6 billion to clear its name, but Kleinfeld was not charged with wrongdoing.) It alleged he had engaged in vote buying to assure his continued control at Arconic. It suggested Kleinfeld had a so-called “impunitive” personality and could not take responsibility for his failures.

While other shareholders and Arconic executives were being bombarded with the new deck, Singer’s general counsel, Richard Zabel — formerly Preet Bharara’s No. 2 at the Manhattan U.S. attorney’s office — was furiously penning a letter to the Arconic board informing it of Kleinfeld’s bizarre letter. In it, he wrote, were “veiled suggestions that [Kleinfeld] might intimidate or extort Mr. Singer.” Almost immediately Elliott and Arconic began negotiating for a settlement to end the proxy battle. Six days later, on April 17, Arconic announced Kleinfeld’s departure.

Given Singer’s assertion that the letter was based on “completely false insinuations,” extortion may seem a bit far-fetched. Fellow activist Jeffrey Ubben, CEO of ValueAct Capital, went so far as to call the ouster of Kleinfeld a “prosecutorial” tactic by Elliott.

Regardless, the two sides didn’t get much further than agreeing on Kleinfeld’s dismissal. A week later, Arconic said Elliott had “reneged” on two settlements they had agreed upon in principle.

Elliott denies that it reneged on anything. But Arconic thought it had a deal, then at the 11th hour received new demands from Elliott, including control of an operating committee to oversee the board, control of a new CEO search committee, and an agreement to let it sell its shares at any time. Elliott, Arconic claimed, “pursued a ‘win-at-any-cost’ approach and has turned activism into a blood sport.”

Laments one person familiar with Elliott’s strategy: “This is war.”



The fact that Elliot turned the screws on Arconic places the hedge fund at the belligerent end of the activist spectrum, one out of step with other prominent activists who recently have been able to avoid nasty proxy battles. Yet the maneuver was no surprise to those who know Singer and his firm. “It’s utterly consistent with other Elliott negotiations,” says a former hedge fund executive. “They are a pain in the ass to negotiate with. They retrade at the last minute all the time.”

This time ISS also concluded that Elliott had overreached. In its recommendation on May 15 that investors vote for two Elliott nominees, ISS said that demanding an operating committee overseeing the board is highly unusual and uncalled for. The proxy adviser added that “the dissident seems to have pushed its advantage too far in this regard.”

Yet three days before shareholders were due to vote on competing slates of director candidates last month, Elliott and Arconic reached a settlement that gave the hedge fund most of what it wanted: three board seats and a say in Arconic’s new CEO search, among a smattering of other items.

The truce ended what had been the ugliest shareholder activist campaign in the U.S. since Starboard Value’s battle with Darden in 2014, which ended with the hedge fund replacing Darden’s entire board and Starboard Value CEO Jeffrey Smith being named its chair. Since then, Starboard partner Peter Feld says, the fund hasn’t had to go the distance of a drawn-out proxy battle in which shareholders vote over competing slates of board directors to get its way. Even Third Point founder Daniel Loeb, notorious for his “poison-pen letters” to corporate CEOs, hasn’t written such vitriol since his battle with Sotheby’s in 2013. Meanwhile, big-name activists like Carl Icahn and Pershing Square Capital Management CEO Bill Ackman, both of whom have been nursing years of losses, have grown quieter, settling their more recent scores behind closed doors.

“We haven’t had a contentious situation in years,” says Ackman, referring to his 2011 proxy battle with Canadian Pacific, which led to a boardroom shakeup, a new CEO, and a return of 150 percent on his $1 billion investment.

In 2014, Singer invited Ackman to offer his insight to the senior Elliott team on running an activist hedge fund. At the time, Ackman was engaged in his knock-down, drag-out fight with Allergan, which accused him of insider trading (a lawsuit it later dropped) as he unsuccessfully sought a merger with Valeant, which earned Pershing Square more than $2 billion. The takeaway from Ackman’s speech, says an individual who was there: Hire good lawyers. The next year Singer hired Zabel away from Bharara.

Singer has always been willing to wage battles, legal or otherwise. But institutional investors, who by and large are growing more comfortable with activists, call proxy fights the “nuclear option” and applaud a more cooperative approach. “The best activists are constructive and are willing to work collaboratively” with companies, says Rob Main, the head of Vanguard’s portfolio company engagement, analysis, and voting.

“There are not a lot of real confrontational proxy fights anymore. That’s been a trend for several years,” adds Kenneth Squire, president of 13D Monitor, which tracks filings with the SEC signaling activist intent.

And while a slew of new activists have launched funds in recent years (including three men who used to work for Ackman, and one for Icahn), the confrontational strategy is no longer the hedge fund play du jour, having been replaced by quant strategies. ValueAct’s Ubben, who is known for cooperating with management, recently said he would return more than $1.25 billion to investors, noting he is “skeptical” of the market’s lofty valuation.

But if going for the jugular is the way to maintain a strong track record, Singer is the man to do it. “Nobody else has that street cred,” says Chris Cernich, managing director of Strategic Governance Advisors and previously a top executive at ISS.

While Elliott says it is happy to work cooperatively when possible, this year it has been involved in four raucous shareholder activist campaigns on four continents. In addition to the U.S. battle with Arconic, it has taken on mining giant BHP Billiton in Australia, Samsung Electronics in South Korea, and Akzo Nobel in the Netherlands, which has been resisting a takeover by U.S. rival PPG Industries that Elliott supports. On May 9, Elliott said it had begun legal proceedings to try to oust Akzo chair Antony Burgmans for his refusal to entertain PPG’s offer.

According to calculations from public sources, Elliott has about $8 billion in activist campaigns underway, almost a quarter of the $32.8 billion in assets under management at the multi-strategy fund. The sheer amount of capital Elliott has also makes it formidable. “People know they can afford to fight. They use the size of their capital as a weapon,” says a former hedge fund executive. In May, Elliott raised another $5 billion in committed capital.



Singer launched Elliott in 1977, which makes it the oldest continuously running hedge fund in the U.S. Its original focus was convertible arbitrage, the hot hedge fund strategy of the day. When some convert issuers could not pay their debts, the fund ended up battling in bankruptcy court. It was in bankruptcy battles over the years — with companies ranging from TWA to Lehman Brothers to Caesars — that Elliott’s reputation for playing hardball was honed.

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