Market Overview

Elliott Management Releases New Letter to Arconic Shareholders


Elliott Management Corporation ("Elliott"), which manages funds that
collectively beneficially own a 13.2% economic interest in Arconic Inc.
(NYSE:ARNC) ("Arconic" or the "Company"), today released a new letter to

The full text of the letter follows:

May 8, 2017

"[T]here is [a] problem plaguing some American companies: poor
corporate governance. And this one should be eas[y] to fix. All it
requires is that board members faithfully represent shareholder
interests. Exhibit A is the governance failures unearthed by activist
hedge fund Elliott Management in its battle with the management of
Arconic, part of the aerospace and automotive parts manufacturer
formerly known as Alcoa. These failures exemplify the way that outdated
corporate governance structures can harm the competitiveness of American
companies. Shareholders, employees, and countless other Americans suffer
as a result." –
Todd Henderson and Dorothy Shapiro, The University
of Chicago1

Dear Fellow Shareholders of Arconic Inc. ("Arconic" or the "Company"):

Arconic's Board of Directors has now issued a series of open letters to
the Company's shareholders. These letters dust off the old standbys –
cue up "short-term" and "undue influence," throw around "hedge fund"
like an epithet. Not only are these tired notes, but worse, they are
simply inapposite. In this situation, it is Elliott, not the Board,
which has demonstrated fidelity to the long-term interests of Arconic.

There is of course a robust and worthwhile debate to be had about the
proper role of shareholder activists. But even the most stubborn
defenders of the corporate citadel will admit that "underperforming
companies may be able to benefit from better board oversight, fresh
perspectives in the boardroom, new management expertise and/or a change
in strategic direction. Responsible and selective activism can be a
useful tool to hold such companies accountable and propel changes to
enhance firm value, and institutional investors can benefit from the
budget and appetite of activists who drive such reforms."2

Our efforts at Arconic are an example of such "responsible and selective
activism." Ours is a "constructive form of advocacy characterized by a
genuine desire to create medium- to long-term value"3 and
Arconic is clearly an "underperforming company" which would "benefit
from better board oversight" and "new management expertise."

On January 31st, we nominated four new highly qualified
independent directors to serve on Arconic's Board. We did not take this
step lightly. However, we believed that after nine years of dismal
financial and operating performance, repeated instances of poor judgment
on the part of management and the Board, and a continuing unwillingness
to improve Arconic's outmoded corporate governance regime, change was
required at both the management and Board level.

The events of the past two months – the belated revelation of Arconic's
voting agreement with the seller of Firth Rixson, the voluntary
triggering of an old-fashioned "poison put," the obstinate defense of
Klaus Kleinfeld up until his departure became inevitable as a result of
bizarre and potentially criminal conduct, the rigid continued adherence
to Dr. Kleinfeld's failed policies even after his departure, and now the
delay of the Company's Annual Meeting – have only served to confirm our
belief that change is urgently needed at Arconic.

We are mindful that American corporations are not direct democracies. We
know shareholders elect the Board, and the Board members as fiduciaries
for the shareholders, not the shareholders themselves, manage the
corporation.4 But, in certain instances, when the Board has
manifestly and repeatedly failed in its responsibilities, the Board
surrenders the presumption of deference. Arconic is such a situation.
Here at Arconic, the Board has failed in its key responsibilities, is
not aligned with the long-term interests of Arconic's shareholders, and
has consistently, over a long period of time, acted to frustrate the
adoption of basic principles of good governance.

Regardless of any past failures, the Board insists that it remains the
right steward. It seeks to pass off the replacement of a handful of
people for the embrace of a new direction. Sadly, the Board's words and
actions indicate that it remains interested principally in its own
continued entrenchment and does not believe real change is necessary.

Almost as troubling is the Board's continued insistence that its
approach to corporate governance is not in dire need of adjustment. This
Board has excused or been responsible for governance failures ranging
from vote-buying, to poison puts, to the determined defense for years of
one of the most retrograde governance regimes in corporate America. In
its latest presentation, dated May 4th, this same Board
describes itself as having a "consistent record of strong corporate
governance." As we take pains to demonstrate in the sections that
follow, nothing could be further from the truth.

In this letter, we reiterate our call to shareholders large and small to
join us in our effort to ensure that Arconic is led by a Board that
recognizes the need for real change and possesses the good judgment and
right mix of skills and experience to produce sustainable value over the
long haul.

Arconic's Board Refuses to Acknowledge that Real Change is Necessary

Following the departure of Klaus Kleinfeld and Ratan Tata, the Board has
added two new nominees to its slate. But change is not simply about
bringing in new people. Change requires a belief that real improvements
are warranted in the way a company operates and approaches important
issues ranging from strategy to governance. In its latest letter, the
Board has belatedly tried to reposition itself as a "change" vote in
this election. But even a cursory survey of the Board's rhetoric over
the last three months offers a clear indication that it believes that no
real change at Arconic is necessary.

In fact, even following the resignation of Dr. Kleinfeld on April 17,
the Board repeatedly endorsed his failed strategy and defended his
operational performance – going so far as to vow to continue that
strategy and to limit its CEO search to candidates who will execute it

"The Board reaffirms the strategy developed under Mr. Kleinfeld's
leadership and shared with our investors, customers and employees." –
Arconic Press Release, April 17, 2017

"There are no plans to change our strategy or direction as a company." –
David Hess letter to employees, April 17, 2017

"The Board believes that Arconic has the right strategy and is executing
well on that strategy." – Pat Russo letter to employees, April 17, 2017

"I would say probably the answer is yes to that." – David Hess, Interim
CEO, when asked whether it is a precondition for the next CEO to sign on
to the company's pre-existing three-year plan, Arconic 1Q17 Conference
Call, April 25, 2017

"Board is unanimously supportive of Arconic's current strategy." –
Arconic Presentation, May 4, 2017

The implications of these above statements regarding the upcoming CEO
search and the new CEO's freedom to operate and develop strategy are
profound. Arconic's Board states above that they have pre-determined
that the existing corporate strategy, as propounded by Dr. Kleinfeld,
remains the right one. They state that they expect the new CEO to
continue to follow that strategy. As a well-respected JP Morgan analyst
recently noted, "The new CEO is expected to endorse prior financial
targets, which could make it more difficult for an outsider to take the

This is a remarkable window into the Board's thinking regarding its most
important task in the months ahead: the selection of the Company's next
CEO. These statements make clear that the current Board will be
screening for someone who will continue to adhere to Dr. Kleinfeld's old
strategy and that new perspectives and fresh thinking remain unwelcome
at Arconic. Not only will this posture fail to attract top-tier
candidates and restrict the candidate pool to those willing to execute
the former CEO's plan, it also ties any new CEO's hands should he or she
want to lay out fresh thinking once in the position.

Arconic's Board wants shareholders to believe they're open to the best
thinking and receptive to change. This is not true. Real change requires
evaluating strategy anew together with the new CEO of the Company and
then holding him or her accountable for the execution of that strategy.

The Board has Willfully Abdicated its Fundamental Responsibilities

Failure to Establish the Appropriate "Tone at the

Among the Board's most important obligations is to "establish the
appropriate ‘tone at the top' to actively cultivate a corporate culture
that gives high priority to ethical standards, principles of fair
dealing, professionalism, integrity, full compliance with legal
requirements, ethically sound strategic goals and long-term sustainable
value creation."5 Arconic's Board has failed at this task.
Since the start of this proxy contest, it has been revealed that the
Company has entered into agreements that promote the self-serving ends
of management and the Board at the expense of the Corporation – twice.
Because Arconic continues to conceal the full details of these
arrangements, the manner and degree of Board participation in their
creation remains unclear. But one thing is beyond doubt: The Board
failed to do anything to stop these agreements and thereby permitted
management's active efforts to entrench.

First, in August of 2016, following a $3 billion acquisition that
destroyed well over $1 billion of shareholder value, Arconic traded
potentially valuable legal claims against the Seller of Firth Rixson
(the "Seller") in exchange for a voting agreement to promote the
entrenchment of management and the current Board for a period of two
years and $20 million. In this situation, management and the Board put
its own interests (entrenchment) ahead of the Company's interests
(maximizing the value of its legal claims and, thereby, corporate
assets).6 Not only did this action harm the Corporation, but
the Board compounded the harm to shareholders by failing to make proper
disclosure and actively gerrymandering the shareholder franchise. The
agreement between Arconic and the Seller was signed on August 18th.
Conveniently, this was the day after the Company published its
Definitive Proxy for the Company's Reverse Stock Split. The timing of
the agreement's signing seems more than mere coincidence.

From the date the agreement was signed, August 18th, through
the filing of a 10-Q, 10-K, and Preliminary Proxy Statement, the Company never
disclosed the agreement. This effort to conceal may have been motivated
by dead-hand provisions in the Agreement which ensured that once the
March 1st record date had passed, should the Seller choose to
transact its shares, the Seller would still be required to vote in favor
of management, thereby mandating "empty voting." Unfortunately, there
remains much we do not know about this agreement, because Arconic
refuses to publish it, disclose any information about the claims that
were traded or provide shareholders with the relevant books and records.7

More recently, during the pendency of this proxy contest, the Board
imposed upon the Company a potential $500 million funding obligation
whose sole plausible purpose is to entrench management and the Board.
This "Poison Put" option was embedded in a Trust Agreement created in
1993 for the benefit of certain deferred compensation plans and
subsequently amended and restated in 2007. The agreement was not
disclosed at the time of its creation, modification, when Elliott filed
its 13-D (the supposed triggering event) or at the start of this proxy

Importantly, there was no obligation on the Company to trigger this
provision and thereby saddle it with this substantial potential funding
. In addition, prior to its decision to trigger the
Poison Put option, the Company also retained the right to unilaterally
amend or eliminate the provision at any time it wanted
. But
rather than spare shareholders from this liability and allow an election
untainted by the specter of this funding commitment, the Board instead
chose to declare that the election of Elliott's nominees could trigger a
change of control. Similar Poison Put devices have been condemned by
virtually every knowledgeable corporate governance expert. As now Chief
Justice Leo Strine wrote: "…[B]ecause – ‘it constitutes a fundamental
offense to the dignity of [the] corporate office for a director to use
corporate power to seek to coerce shareholders in the exercise of the
vote' – there is immediate, irreparable harm when the directors of a
corporation leverage a Proxy Put to enhance the incumbent's board
chances of procuring stockholder votes in a closely contested election."8

Each of these two episodes – the trade of corporate assets for a voting
lock-up as well as the invocation of the Poison Put – should have led to
Board action to dismiss those responsible. Unfortunately, the Board not
only failed to act, but may have been complicit in one or both
entrenchment arrangements. Further, it has made clear to shareholders
that it finds these devices permissible. A Board that has repeatedly
demonstrated a willingness to put its own ends ahead of the interests of
the corporation and maintains that such actions are appropriate is a
Board that simply cannot be entrusted to steward the corporation.

Tampering with the Shareholder Franchise

The trade of corporate assets for a voting lock-up and the triggering of
the Poison Put do not merely amount to ethical breaches (in surrendering
or putting corporate property at risk for purposes of personal
entrenchment), but, by their very nature, also constitute clear attempts
to tamper with the shareholder franchise.

Actions to limit or distort shareholder voting are a clear indication
that the Board simply cannot countenance an outcome in which the
shareholders express disagreement with the Board's chosen course. While
the Board may have arrived at its position regarding the need for change
honestly and on the merits, its efforts to prevent shareholders from
expressing disagreement amounts to ultra vires behavior reflective of a
Board that has lost sight of its place – as elected fiduciaries – in the
corporate governance firmament.

The shareholder vote or franchise, as it is known, occupies a unique and
special place in the corporate law. As then Delaware Chancellor Allen
memorably put it "the shareholder franchise is the ideological
underpinning upon which the legitimacy of directorial power rests."9
Shareholders own the Corporation. The directors do not. The shareholders
are the principals. The directors are the agents. It is only through the
investiture resulting from the shareholder vote that the directors
possess rightful authority over the Corporation. As Allen wrote, the
vote "is critical to the theory that legitimates the exercise of power
by some (directors and officers) over vast aggregations of property that
they do not own."10

Arconic's Board seems either to have to forgotten these foundational
principles, or has simply chosen to ignore them.

So far, to our knowledge, all of the shareholders who have expressed
their public preferences – including all three of the Company's largest
shareholders investing in actively-managed funds – support the
shareholder nominees and have announced their desire for change.

The Board, by sharp contrast, believes real change is unwarranted. So be
it. There is a difference of opinion and such disagreement is
permissible. What is impermissible is when the Board acts – as the
Arconic Board has – to prevent that disagreement from being settled in
the manner the corporate law prescribes: at an untainted ballot box.

Poor Judgment

The Board's repeated championing of Dr. Kleinfeld and its endorsement of
his character is a damning indictment of the Board's judgment. Dr.
Kleinfeld had a lengthy history of ethical issues before becoming
Alcoa's CEO. He was forced to resign from Siemens following that
company's bribery scandal because the Siemens Board determined that Dr.
Kleinfeld had failed to adequately supervise the Siemens Corporation.
This scandal led to the payment by Siemens of $1.6 billion in total
fines – including the largest Foreign Corrupt Practices Act (FCPA) fine
in U.S. history11 – and it resulted in Dr. Kleinfeld paying
the Siemens Supervisory Board €2 million personally for his actions (or
inaction).12 At Alcoa Inc. (Alcoa), Dr. Kleinfeld served on
the Board before becoming CEO and was a member of the Audit Committee
when Alcoa made hundreds of millions of dollars of improper payments
that were used to bribe Bahraini government officials. These payments –
a violation of the FCPA – resulted in the imposition of nearly $400
million in fines on Alcoa.13

Given this history, at the very least, the Board should have been on
heightened alert and should have adopted a zero tolerance policy for any
ethical lapses. Instead, it did the opposite. This Board was apparently
willing to excuse anything to protect Dr. Kleinfeld. In doing so, it
fundamentally abrogated its responsibilities. The Board became Dr.
Kleinfeld's advocate rather than the Corporation's steward and thereby
created an "anything goes" culture amidst which Dr. Kleinfeld seemingly
felt that it was permissible to threaten a Company shareholder.

Even the manner in which the Board explained Dr. Kleinfeld's belated
departure illustrates the Board's casual approach to ethical issues. Dr.
Kleinfeld sent a senior officer at Elliott a letter which clearly read
as a threat to intimidate or extort. The Board calls this "poor
judgment." A prosecutor might call it criminal. But all should agree
that anyone who engages in such behavior does not deserve lavish praise
or laudatory comments from the Board's new interim Chairman, whatever
the merits of that executive's past work. If the Board is willing to
praise and potentially reward with severance compensation a leader that
has violated the most basic standards of proper behavior, it is clearly
unconcerned with establishing an appropriate ethical tone. In its
release announcing Dr. Kleinfeld's resignation, Arconic's Board praised
Dr. Kleinfeld for his "unwavering leadership and many accomplishments."
It further noted that it remains "deeply appreciative." Even if Dr.
Kleinfeld were the best-performing CEO in the S&P 500, such commentary
following an attempt at extortion would be highly inappropriate.

However, following Dr. Kleinfeld's departure, the Arconic Board did not
stop there. The Board saw fit to follow one inappropriate act with
another and in fact rewarded Patricia Russo for her oversight of
Dr. Kleinfeld in her role as Lead Director by appointing her as Interim
Chair and providing her an immediate eight-fold increase in compensation.14

Failure to Plan for Succession

The departure of Dr. Kleinfeld also revealed the Board had failed in
another critical task: that of establishing a succession plan. The
installation of a hastily recruited Board member handpicked by the
now-former CEO reveals the Board had no credible succession strategy.15

Given Dr. Kleinfeld's poor performance, extensive outside commitments,
and overt shareholder demands for change, the need for a robust
succession plan should have been obvious. At any other company of
comparable size, the absence of a succession plan would be shocking. But
at Arconic, it is not surprising. Over the past nine years, the Board
has allowed Arconic's top ranks to be staffed by loyalists drawn from
among Dr. Kleinfeld's former colleagues at Siemens. Not only does such
insularity breed poor decision-making, it also tends to result in the
Company lacking viable potential internal successors if a need for
changes arises. Here, the Board permitted the installation of two
Siemens alums at the top of the Company's two largest business units who
lacked any experience (before arriving at Arconic) in the end-markets
they serve.

At companies of similar size, operating in the markets Arconic serves,
such absence of previous industry and operational experience in senior
management is simply without precedent or peer. It is obvious now – with
the installation of Board member David Hess as interim CEO – the Board
actually believed these former Siemens executives lacked the capacity to
lead the whole firm if the need arose. One must wonder what the Board
would have done if they hadn't felt the need – apparently, solely as a
result of this proxy contest – to find Mr. Hess in March.16

The Board is Not Aligned with Shareholders

In past letters, the Board has made much of the fact that it owes
shareholders fiduciary duties, while Elliott does not. It suggests that
such obligations produce a superior alignment with Arconic's
shareholders. This is a fundamental misunderstanding of the corporate
governance regime. Fiduciary duties are an inferior substitute
for genuine alignment. Such duties exist precisely because, by
definition, the Board is not aligned with shareholders. Moreover,
Pennsylvania is an "other constituencies" state in which the Board may
consider the interests of other constituencies apart from shareholders
in making its decisions. By contrast, Elliott, as a fellow shareholder,
is already perfectly aligned with Arconic's other shareholders.

Consider the old business riddle:

Question: In a bacon-and-egg breakfast, what's the difference between
the Chicken and the Pig?

Answer: The Chicken is involved, but the Pig is committed!

At Arconic, the Board is involved. But Elliott is committed.

Elliott has $1.6 billion invested in Arconic. Our economic interest is
in Arconic's common equity. We have no preferred rights and do not seek
any. Shareholders, large and small, should take comfort in knowing that
Elliott is in precisely the same position they are.

Unlike Elliott, the Board simply hasn't "put its money where its mouth
is." Among the legacy directors, only one of them (and on one occasion)
has ever purchased Company shares on the open market. In fact, as far as
we can tell Patricia Russo (the current Chairman), has never purchased a
single share during her tenure. These Board members are involved, not

This absence of genuine alignment and the external personal interests of
some Board members may help explain the Board's tolerance for
management's failings. Specifically, the Company's new interim Chair and
former Lead "Independent" Director, Ms. Russo, maintained an
interlocking relationship with Dr. Kleinfeld that significantly lessened
the likelihood of effective and impartial oversight. Ms. Russo is on the
Board of Hewlett-Packard Enterprise (HPE) where she is the Chairman.
Until his recent departure as part of the continuing fallout over the
letter he sent to Elliott, Dr. Kleinfeld also served on the HPE Board.
At Arconic, Ms. Russo was responsible for supervising Dr. Kleinfeld as
CEO and Chairman and Ms. Russo sits on the Board committee that set his
compensation. Simultaneously, at HPE, Dr. Kleinfeld served on the
committee responsible for supervising Ms. Russo and for setting her
compensation. Even if there was no outright quid-pro-quo, this type of
mutually dependent relationship was bound to affect Ms. Russo's
willingness and ability to form an independent judgment about Dr.
Kleinfeld on the merits.

It is worth noting that Ms. Russo led the Board's review of Dr.
Kleinfeld's performance and in a recent Wall Street Journal
piece, she mused aloud: "I lose sleep wondering, what am I missing
here?" In our communications with the Board, we extensively documented
dismal total shareholder returns, poor financial and operating
performance, a broken company culture, and the ethical lapses described
above. These issues were obvious for all to see. Whether Ms. Russo's
blindness to these matters reflected the need to protect her own
position at HPE and Arconic, a simple lack of good judgment, or some
combination thereof, it certainly calls into question her capacity to
lead this Company going forward.

The Board has Frustrated the Adoption of Basic Principles of Good

The Board's comments about fiduciary duties are also perplexing because
Arconic is a Pennsylvania corporation. Pennsylvania is an expanded
constituency state. Arconic's Board – despite its previously discussed
claims of obligations to shareholders – actually owes no controlling
duties to the Company's owners
. Given this, shareholders have good
reason to wonder whether the Board, protected by Pennsylvania's nebulous
fiduciary duty standards, is animated by concerns beyond the best
interests of the shareholders – including ego, prestige, reputation,
overlapping Board service, social ties or personal friendship.

The absence of controlling duties to shareholders isn't the only problem
with Pennsylvania incorporation. As a consequence of Arconic's
Pennsylvania incorporation and its remarkable and continuing refusal to
opt-out of that state's anti-takeover regime, Arconic can rely on such
retrograde measures as control share cash-out obligations and potential
dead-hand poison pills in the service of management and Board

In addition, Arconic's Board is staggered. Removal of directors requires
the consent of 80% of the outstanding shares. In practice, action by
Written Consent requires the satisfaction of a similar 80% threshold.
De-staggering also requires consent of 80% of the outstanding shares. As
the Board well knows, meeting these extraordinarily high thresholds is
effectively impossible. At no Alcoa annual meeting since the end
of broker voting in 2012, has the quorum present for voting on such
matters exceeded 61% of the outstanding shares – not enough to
approve declassification even if every single share were voted in favor
of it
. Taken together, these provisions create substantial
impediments to effective oversight of the overseers and, as a result,
are likely to hinder rather than enhance the effectiveness of Arconic's
Board in serving shareholders.

For these reasons, Pennsylvania incorporation is increasingly anomalous
among publicly traded corporations. At this point, fewer than 20% of
publicly traded corporations are incorporated in expanded constituency
states like Pennsylvania (a figure which continues to decline) and an
even smaller percentage of newly public companies (IPOs) are
incorporated in these states. In fact, in 2016, of the 102 companies
that went public on the NYSE or NASDAQ, not a single one was
incorporated in Pennsylvania.17

In stark contrast, the managers of Alcoa Corp. have embraced
shareholder-friendly corporate governance practices. Alcoa Corp. is
incorporated in Delaware. Its Board is annually elected. Directors can
be removed by a majority of the outstanding shares. It has split the
roles of Chairman and Chief Executive and its bylaws can be amended by a
simple majority.

From the very beginning of Elliott's involvement in Arconic (then Alcoa
Inc.), we have encouraged the Company to reincorporate in Delaware as
soon as possible. Reincorporating in Delaware would not only remove the
needless overhang of Pennsylvania's burdensome corporate law provisions
but would also allow the Company to immediately de-stagger the Board.

However, like a skilled parliamentarian, Arconic's Board has relied upon
its supermajority provisions to preserve a retrograde corporate
governance regime, frustrating shareholder efforts to de-stagger while
disingenuously attempting to claim credit for supporting de-staggering.
In 2011, Arconic's voting shareholders voted overwhelmingly, despite
the Board's negative recommendation
, for a non-binding
recommendation to de-stagger.18 But not enough outstanding
shares voted. Chastened but not converted, the Board took a more clever
approach in 2012. It put the proposal to de-stagger on the ballot, but
it elected not to campaign for turnout. Predictably, again despite the
overwhelming support of voting shareholders, the measure did not
garner sufficient outstanding shares.19

These votes were pure theatre. If the Board truly wanted to de-stagger,
a simple and obvious path has long been open to it – move the corporate
domicile to Delaware. Alas, at every opportunity the Company has
steadfastly resisted such a step. The Company could have reincorporated
at the 2016 Annual Meeting. It did not. The Company could have
reincorporated at the October 2016 Special Meeting in which shareholders
approved the Company's reverse stock-split. Notwithstanding our repeated
suggestions to do so, once again it did not.

But now, all of a sudden, in the midst of a proxy contest, the Board
professes to have had its "Road to Damascus" moment and gotten the good
governance religion. The Company has announced that it intends to submit
"for shareholder approval [a resolution] to declassify the Board
structure." Sadly, this is a half-measure and yet another disingenuous
delaying tactic. What Arconic's Board apparently won't do is actually
seek shareholder approval to reincorporate the Company in Delaware. Such
a step remains a contingency plan. The Board writes: "If such proposal
[to de-stagger] fails to receive the requisite supermajority vote, the
Board intends to take actions necessary so that all directors are
subject to annual elections by no later than the 2018 annual
meeting of shareholders; this could be achieved by seeking
shareholder approval to reincorporate the Company in Delaware."
(Emphasis added). In short, the real message from Arconic's Board is:
Our shareholders may have pressured us into "trying" to de-stagger the
Board, but we have no committed intention of giving up Pennsylvania's
egregious protections.

Tellingly, in a recent release, the Board describes improvements to the
Company's governance regime as "concessions" it may offer Elliott.20
These "concessions" include separating the Chairman and CEO roles for at
least two years and reincorporating in Delaware by year-end with a
de-staggered board and no supermajority voting requirements. Elliott
believes these improvements benefit all shareholders. The Board believes
these are "concessions." This is revealing. A board culture wherein
governance improvements are thought of as "concessions" and parceled out
grudgingly and only under duress is a profoundly broken board culture.
It suggests the Board views accountability to shareholders as a
bargaining chip rather than a requirement.

Moreover, while it dangles governance "concessions" in one hand, the
Board has also hurriedly added two new nominees to fill its card, but
only after its gambit to recruit two of the shareholder nominees put
forward by Elliott flopped. Such conduct makes a mockery of the
Company's claim in its latest presentation that "Arconic's Board has
been purpose-built." Board nominees aren't pawns. They're supposed to be
stewards. Nominees should be carefully selected to enhance the
experience and expertise of the Board and the nominees themselves should
spend time studying the Company and understanding the business before
accepting the role. Elliott went through an extensive search process to
find the shareholder nominees and unlike the Company's most recently
proposed nominees, drafted hurriedly onto its slate in desperation only
21 days before the election, the shareholder nominees put forward by
Elliott have been studying the Company exhaustively for many months. We
identified them for the value they could add to Arconic, not their
utility in proxy contest gamesmanship.

All this proves that whenever the Board expresses newfound belief in
good governance, it is sharing what is at best an Augustinian vow:
"Shareholders, grant us good governance, but not yet."21

Elliott's Goals at Arconic

Elliott is a long-term investor in Arconic. We made our initial
purchases nearly two years ago following an extensive and exhaustive due
diligence process costing many millions of dollars, and the very size of
the position makes a quick exit impractical. Further, in all our
communications with the Company, we have emphasized the importance of
operational and governance improvements that would enhance long-term
performance. Nevertheless, Arconic's Board has consistently and
deliberately misrepresented Elliott's goals as short-term in nature and
an attempt to exert undue influence. Nothing could further from the


Some argue that activist-driven decisions to return more capital to
shareholders (in the form of buybacks or dividends) have come at the
expense of productive reinvestment.22 While such concerns may
be warranted in some situations, they are simply not at issue in this
contest. Elliott has not demanded a buyback, nor have we
encouraged Arconic to increase its dividend. In fact, one of the reasons
we invested in Arconic is because the firm operates in an industry
(aerospace) and sub-sector (fasteners, castings, forgings) in which we
anticipate ample profitable avenues for reinvestment.

Another way of putting it is that our concern at Arconic isn't the absolute
level of investment in the business, but the returns which
have been earned on those investments. Since 2013, Arconic has deployed
more than $6.2 billion of its owners' capital on growth capital
expenditures, research and development, and acquisitions.23
To date, those investments have managed to increase Net Operating
Profits After Tax (NOPAT) by only $154 million.24 The problem
here isn't spending $6.2 billion; it's getting 2.5% in return. That is
value destruction on a grand scale.

Elliott's goals at Arconic include (1) increasing the cash flow
generated from Arconic's operations through more disciplined execution
and by instilling a culture of accountability; and (2) finding
high-return opportunities to deploy that cash in ways that strengthen
Arconic's franchise. Only if management is unable to find such
opportunities should capital be returned. Here, buybacks and dividends
are a fail-safe, not a first choice.

Moreover, the way Arconic's Board expresses its concerns about
"short-termism" seems intentionally designed to confuse rather than to
clarify. In one of its first letters to shareholders, the Board wrote
that "the path we have pursued did not, and was not designed to,
maximize our short-term stock price or earnings – although that surely
would have made our lives easier."25

But Elliott has not faulted the Board for
failing to "maximize [Arconic's] short-term stock price or
earnings." Our problem is that it has failed to maximize Arconic's long-term
stock price and earnings.

As a result, notwithstanding the Board's mudslinging, it has been plain
from the very beginning that Elliott's focus is very much long-term
oriented. As corporate governance experts Todd Henderson and Dorothy
Shapiro recently wrote, "Elliott … has proposed a long-term strategy,
unlike some activist shareholders only interested in stock buybacks or
other short-term fixes."26

Dr. Kleinfeld wasn't a recent arrival. He was CEO for nearly nine years
and a C-level officer for almost a decade. Ms. Russo has been serving
the Corporation since 2008. By now even the Board must acknowledge that
sufficient time has passed for shareholders to take the change in market
value of their ownership stake into account when assessing the record of
the Board and management.

Further, the long tenure of key Board members and management speaks to a
fundamental logical flaw in the Board's argument. While shareholders may
be skeptical of long-term investments when first made, a Board and
management team that demonstrates the ability to consistently generate
returns above the cost of its capital will be rewarded with a higher
stock price the more the Company invests. If Arconic were indeed making
profitable investment decisions, by now, nine years later, the stock
price would reflect the Board's prowess.

Finally, whatever the goals of the shareholder activist, it is almost
always the case that faced with a proxy fight, it is management
and the Board (not the shareholder activist) that have the greater
incentive to sacrifice long-term performance for short-term gains or in
pursuit of self-serving ends. This problem is particularly acute at
companies like Arconic in which the Board and management have
extraordinarily little invested in the firm's shares. In such
situations, considerations of ego and the economic incentive toward
continued employment and remuneration may weigh heavily.

In short, we understand the concerns some have about an increasingly
myopic focus on quarterly earnings or the current trading price. In
fact, we share those worries. But that fear should not give the
words "short term" a talismanic power capable of immunizing the Board
and management from shareholder accountability. Shareholders have
entrusted boards and management with their capital. After a reasonable
interval, in this case nine years, it is only appropriate to ask – how
have they done?

"Undue Influence"

The Board's argument that Elliott seeks "undue influence" is equally
irrelevant to the contest at hand and is profoundly flawed on its face.
Elliott hasn't nominated any employee or affiliate. Further, the
directors nominated by Elliott will receive no ongoing compensation from
Elliott for their service and will have no ongoing ties of employment or
otherwise with Elliott.27 Instead, up for election are three
former aerospace operating executives with a combined 80-plus years of
industry experience and a former industrial and materials executive who
has run multiple CEO searches. These are extraordinarily well-qualified
candidates with distinguished resumes and critical skills this Board
manifestly lacks. All are independent. All Elliott has done is identify
them. We cannot seat them and cannot cast more than our fair share of
the vote. It isn't any "undue influence" from Elliott that will result
in their elevation to the Board, but the legitimate expression of the
will of a majority of Arconic's voting shareholders.

While Arconic has sought to portray the three directors seated in
February of 2016 by mutual agreement of the Company and Elliott as
"Elliott directors," this characterization of these individuals makes
zero sense. All Elliott did with respect to such directors was to work
with the Company cooperatively to identify them. Contrary to the
Company's repeated and knowingly false allegation, Elliott did not
nominate any of the February 2016 directors, and they have amply
demonstrated their independence from Elliott throughout this contest.
The Board praised these directors effusively in its latest presentation.
It only refers to them as the "Elliott directors" when it finds it
convenient to do so in order to advance its disingenuous argument that
Elliott's true goal is control of the Board. Ironically, this argument
is fatally undermined in a "Catch-22" by the unanimous nature of the
Board's communications, including on the subject of Elliott's alleged
"undue influence."

Further, Elliott has taken pains to make clear that while we believe
Larry Lawson – an experienced aerospace executive who achieved
considerable success running a public company – should be a leading
candidate to be Arconic's CEO, we have never demanded his selection or
insisted that Elliott be given any sort of veto right over the Company's
choice of Chief Executive. From the start, we have made very clear that
we believe the choice of Arconic's next CEO is the exclusive province of
the Board. Our only goal is to ensure the Board is comprised of
individuals who have consistently demonstrated good judgment in the past
and bring to the table relevant expertise and experiences such that the
Board is positioned to make a prudent selection in this regard.

The Case for Change is Compelling

Arconic's underperformance on a total shareholder return (TSR) basis has
been consistent and enduring.28 Its returns to shareholders
have lagged in the short, medium and long term. This persistent
underperformance is the consequence, not of any deliberate plan, but
frequent operational failures, poor capital allocation, an incoherent
strategy, and a broken company culture. Continuing on the current course
is untenable. If Arconic's operations are not improved, it will not
generate the necessary funds to adequately reinvest in and grow its
business. If Arconic reinvests poorly, its position in the marketplace
will erode and its employees and shareholders will suffer the

The Board has made clear that it believes Arconic is on the correct
course. It explicitly "reaffirm[ed] the strategy developed under Dr.
Kleinfeld's leadership" and insisted Dr. Kleinfeld's departure was not
the product of the Board's recognition of Arconic's poor financial
performance, the result of any searching review of Arconic's operations,
or an admission that the Company's multiple attempts to entrench the
Board and management were misguided ethical breaches.29 In
short, the Board didn't dismiss Dr. Kleinfeld because it belatedly came
to recognize that change is needed at Arconic. It agreed to his
resignation only because, faced with potentially criminal conduct, it
had no other choice.

The Board's failure to recognize the need for
change at Arconic is the strongest argument yet that such change is

Further, the Board's entrenching actions – trading corporate assets for
a voting lockup, triggering a $500 million poison put and now delaying
the Company's annual meeting – are all independent bases on which
the case for change rests. The Board is entitled to its opinion on the
merits, but it is not entitled to frustrate shareholder attempts to
register their disagreement.

No one likes a proxy contest. It is extremely expensive, time consuming,
and exhausting. It is a last resort, not a preferred course. Were we –
and other shareholders – convinced that the Board recognized the need
for change, that its members had the good judgment, moral compass, and
needed expertise required to be this Company's stewards, and that the
Board was genuinely committed to addressing the alignment and governance
issues that have plagued this Company, then there would be no need for
this proxy contest. But, unfortunately, that is not the case. Whatever
the short-term challenges that this contest poses, failing to hold the
Board to account and failing to address the manifest problems at Arconic
would be deleterious to the long-term health of the Company.

We at Elliott are long-term investors committed to ensuring that Arconic
has the leadership – both at the Board and management level – to produce
sustainable world-class performance for its employees and its owners. We
welcome the engagement of our fellow shareholders in this task, and we
ask for your help by voting the BLUE
card today.

Thank you.

Elliott Management Corporation

Additional Information

Elliott Associates, L.P. and Elliott International, L.P. (collectively,
"Elliott"), together with the other participants in Elliott's proxy
solicitation, have filed a definitive proxy statement and accompanying
BLUE proxy card with the Securities and Exchange Commission ("SEC") to
be used to solicit proxies in connection with the 2017 annual meeting of
shareholders (the "Annual Meeting") of Arconic Inc. (the "Company").
Shareholders are advised to read the proxy statement and any other
documents related to the solicitation of shareholders of the Company in
connection with the Annual Meeting because they contain important
information, including information relating to the participants in
Elliott's proxy solicitation. These materials and other materials filed
by Elliott with the SEC in connection with the solicitation of proxies
are available at no charge on the SEC's website at
The definitive proxy statement and other relevant documents filed by
Elliott with the SEC are also available, without charge, by directing a
request to Elliott's proxy solicitor, Okapi Partners LLC, at its
toll-free number 1-877-869-0171 or via email at

About Elliott

Elliott Management Corporation manages two multi-strategy hedge funds
which combined have more than $32 billion of assets under management.
Its flagship fund, Elliott Associates, L.P., was founded in 1977, making
it one of the oldest hedge funds under continuous management. The
Elliott funds' investors include pension plans, sovereign wealth funds,
endowments, foundations, funds-of-funds, high net worth individuals and
families, and employees of the firm.

1 "Another Fix For American Manufacturing: Better Corporate
Governance," Todd Henderson and Dorothy Shapiro, The Huffington Post, available

2 Some Thoughts for Boards of Directors
in 2017
, Martin Lipton, Wachtell, Lipton, Rosen & Katz, December
8, 2016, published at:

3 Some Thoughts for Boards of Directors
in 2015
, Martin Lipton, Wachtell, Lipton, Rosen & Katz, December
2, 2014, published at:

4 Note: This basic formulation is more complicated in states
such as Pennsylvania (where Arconic remains domiciled) in which the
Board is permitted to consider the interests of other constituencies
besides shareholders. We discuss below the difficulties such domicile
poses to effective Board accountability.

5 Corporate Governance: The New Paradigm,
Martin Lipton, Wachtell, Lipton, Rosen & Katz, January 11, 2017,
published at:

6 Shattering all bounds both of credulity and common sense,
the Company continues to insist that the Seller provided the two-year
voting lock-up for no consideration. This astounding proposition flies
in the face of decades of academic research and suggests disturbingly
that the Arconic Board cannot even be trusted to be honest with the
Company's shareholders regarding matters of pure fact.

7 See

8 Kalick v. Sandridge Energy, Inc., C.A. No. 8182-CS
(Del. Ch. Mar. 8, 2013) quoting Sutton Hldg. Corp. v. DeSoto Inc., 1991
WL 80223, at * 1 (Del. Ch. May 14, 1991)

9 Blasius Industries, Inc. v. Atlas Corp., 564 A.2d
651 (1988)

10 Ibid.

11 "Siemens Agrees to Record-Setting $800 million in FCPA
Penalties," Roger M. Witten, William R. McLucas, Andrew B. Weissman,
Kimberly A. Parker, Jay Holtmeier, Wilmer Hale Publications & News;
available at:

12 "Siemens to Sue 11 ex-Board members," Daniel Schafer,
Financial Times, July 29, 2008; available at:;
"Siemens to Collect Damages From Former Chiefs in Bribery Scandal,"
Chris V. Nicholson, The New York Times, December 2, 2009; available at:

13 SEC Release No. 71261, available at:;
DOJ Release, available at:;
"Alcoa settles FCPA charge, pays $384 million to DOJ, SEC," Julie
DiMauro, The FCPA Blog, January 9, 2014; available at:

14 Supplementary Information About the
2017 Annual Meeting of Shareholders
, Arconic Inc., May 4, 2017

15 "At Arconic, Race Heats Up for Next Chief Executive," Bob
Tita and David Benoit, The Wall Street Journal, April 19, 2017,
available at
According to the Journal, Mr. Hess "was recruited by Mr. Kleinfeld" who
"had wanted Mr. Hess to join the board for years" and who "will likely
stay the course set out by the departed chief."

16 Mr. Hess occupies the seat vacated by Martin Sorrell who
failed to attend more than 1/3 of the Board's meetings. This would
likely have earned him automatic "withhold" recommendations from proxy
advisory firms

17 Of the 102 companies, 86 were incorporated in Delaware.
Data provided by FactSet.

18 In 2011, 80.7% of the shares cast on the proposal to
declassify were voted FOR declassifying the Board of Directors despite a
management recommendation AGAINST. However, the 80.7% of the shares that
voted FOR represented only 42.5% of the outstanding shares.

19 In 2012, 96.9% of the shares cast on the proposal to
declassify were voted FOR declassifying the Board of Directors. However,
the 96.9% of the shares that voted FOR represented only 47.4% of the
outstanding shares.

20 Arconic Postpones Annual Meeting Date; available at:

21 Saint Augustine is said to have asked God: "Grant me
chastity and continence, but not yet."

22 See e.g. Corporate Governance: The
New Paradigm
, Martin Lipton, Wachtell, Lipton, Rosen & Katz,
January 11, 2017, published at:

23 Since 2013, Arconic has spent $6,226 ($mm) on growth
capital expenditures, acquisitions, and research and development. Growth
capital expenditures are calculated as Capital Expenditures for
Continuing Operations less 50% of Depreciation and Amortization
(management has previously estimated sustaining capital is 50% of D&A –
see Arconic Investor Day, December 14, 2016)

24 Using a 33% tax rate for both years, in 2013, Arconic
generated Net Operating Profit After Tax (NOPAT) of $628 million. In
2016, Arconic generated $782 million of NOPAT for an increase of $154

25 See Letter to shareholders from
Arconic's Board
, March 2, 2017

26 "Another Fix For American Manufacturing: Better Corporate
Governance," Todd Henderson and Dorothy Shapiro, The University of
Chicago, available at

27 Still more, Elliott has required that the nominees use the
after-tax proceeds of all fees for filling out director nomination forms
and participating in due diligence ($50,000 when nominated, $50,000 if
elected) to purchase Arconic common stock if elected.

28 See slides 25-51 of Elliott's "A New Arconic" investor
presentation available at

29 In its statement the Board wrote: "Importantly, this
decision (accepting Dr. Kleinfeld's resignation), was not made in
response to the proxy fight or to Elliott Management's criticisms of the
Company's strategy, leadership or performance…The Board continues to
believe that under Dr. Kleinfeld's leadership, the Company successfully
executed a transformative vision and improved business performance…and
the Board reaffirms the strategy developed under Dr. Kleinfeld's

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