By Michael Flaherty
(Reuters) - A large Arconic Inc. <ARNC.N> shareholder said on Monday it supports the effort by hedge fund Elliott Management to shake-up the company's board and urged the firm to avoid a proxy fight.
First Pacific Advisors LLC, which owns 4.5 percent of Arconic's stock, expressed disappointment with the board and offered harsh criticism with how Arconic spends its money.
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The letter disclosed by Arconic's third largest shareholder comes as the company and its board dig in for a fight against Elliott, which has nominated five directors and is campaigning for the ouster of Arconic CEO Klaus Kleinfeld.
Arconic's board issued a 12-page letter and summary early on Monday re-iterating its support of Kleinfeld and outlining the progress the company has made since he became CEO of Alcoa Corp. <AA.N> in 2008. Arconic, which has a market value of around $10 billion, separated from Alcoa last November.
First Pacific, in its letter, said Arconic pays too much for its executive compensation and for its Manhattan headquarters. The Los Angeles-based mutual fund manager added that Arconic's directors do not hold enough stock in the company and therefore have interests that fail to align with investors.
"We intend to support Elliott's proposed proxy slate because it best serves the long-term interests of the company and its owners," First Pacific Partners Brian Selmo said in the letter, seen by Reuters.
Selmo, who did not mention Kleinfeld, added that if Arconic chooses to fight Elliott all the way to a shareholder vote, it will be costly and will further entrench the company's board and executives.
Arconic's independent board directors said in their letter and summary disclosed on Monday that the company's profit margins and cash flows have increased in the years since Kleinfeld became Alcoa's CEO in 2008.
"We are confident that we have the right strategy and the right team, and that the company is in the best position it has enjoyed since the financial crisis," the directors said in the letter.
After the split, Alcoa retained the company's legacy aluminum, alumina and bauxite smelting business, while Arconic focused on higher-end aluminum and titanium alloys used in planes and cars.
(Reporting by Michael Flaherty in New York; Editing by Diane Craft and Sandra Maler)