Arconic Names Former GE Executive Blankenship as CEO -- 2nd Update
October 23 2017 - 4:57PM
Dow Jones News
By Bob Tita
Aerospace parts specialist Arconic Inc. named former General
Electric Co. executive Chip Blankenship as its new chief executive,
seeking to bring an end to a year of management turmoil that
included a bitter fight with an activist investor and the sudden
resignation of its former chief.
Mr. Blankenship, the former head of GE's appliance business,
will become Arconic's CEO on Jan. 15., the company said Monday.
Interim CEO David Hess, who has run the company since April, will
stay as a director.
The appointment came as Arconic missed quarterly earnings
expectations because of rising aluminum prices and
higher-than-expected costs supplying parts for new jet engines
built by units of GE and United Technologies Corp., sending its
shares down around 10%.
"Arconic needs improvement in performance across the board," Mr.
Hess told analysts Monday.
Mr. Blankenship, 51 years old, steps into the top job in the
aftermath of a dispute with activist investor Elliott Management
Corp. and as the company deals with the fallout from its connection
to a fatal June fire at Grenfell Tower in London.
Analysts said Monday's selloff reflects investors' anxiety about
whether a new CEO will be able to deliver on the ambitious profit
and margin-expansion targets established by his predecessor. "It's
the lack of visibility on jet engine [parts] and the costs
associated with them," said Josh Sullivan, an analyst for Seaport
Global Securities.
Arconic, which separated from aluminum producer Alcoa a year
ago, has been beset by operating problems that have kept the
company from producing the high margins envisioned by the breakup.
Amid shareholder concerns about the future direction and how to fix
those issues, the process to hire a leader proved slow. Mr.
Blankenship will be expected to install better cost controls and
improve persistent efficiency and technical problems weighing on
production, particularly in businesses acquired in recent years to
expand Arconic's presence in high-value forgings and metals besides
aluminum.
"It's important to get Chip in the seat in January and driving
the execution at critical time," said Adam Karr of Orbis Investment
Management LTD, Arconic's fourth-biggest holder and one who had
previously called for change.
Arconic's disappointing performance led to activist investor
Elliott Management initiating a campaign earlier this year to
replace CEO Executive Klaus Kleinfeld. The ensuing mudslinging,
which involved fights over competing slates of board candidates,
culminated in April when Mr. Kleinfeld abruptly left the company
after he sent a letter to the hedge fund that Elliott perceived as
"a threat to intimidate or extort" the firm.
Arconic said Mr. Kleinfeld showed bad judgment, and they
mutually decided he would step down. Arconic granted Elliott three
more board seats in May.
Mr. Blankenship's hire was called "an excellent selection" by
David Miller, Elliott's senior portfolio manager, in a statement
issued Monday.
Elliott had pledged to install veteran aerospace executive Larry
Lawson as CEO if it managed to gain control of the board. As part
of Elliott's May settlement, it had a role in the selection process
and talked with Mr. Blankenship and other candidates, ultimately
deciding Mr. Blankenship was the best for the job, said some people
familiar with the process.
Mr. Blankenship, whose training is in metallurgy and material
science engineering, joined GE in 1992, and cycled through several
jobs with GE's aircraft engine business. He holds seven patents
related to jet engine technology, according to Arconic. He headed
GE's appliance business from 2011 until June, following its sale to
China's Haier last year. Mr. Blankenship's technical know-how with
metals and experience in the aviation industry were key attributes
for board members and large shareholders alike.
On Monday, Arconic said that board member John Plant will become
board chairman, effective immediately, succeeding interim Chair Pat
Russo.
Mr. Plant joined the board in 2016 as an Elliott appointee under
an agreement between Mr. Kleinfeld and the hedge fund. He is a
former CEO of TRW Automotive.
Arconic continues to face multiple lawsuits and a U.K. inquiry
in connection with the Grenfell Tower fire, which killed at least
80 people. Aluminum panels with combustible polyethylene cores
produced by Arconic were cited by investors as a factor in the
spread of the fire over the building's exterior. Arconic has said
that it wasn't involved in the design or installation of the
exterior cladding system used at the tower, which included
insulation that also burned.
The company reported $7 million in legal and advisory costs in
its latest quarter in connection with the fire. Mr. Hess warned of
a long inquiry into the fire. "It's not unusual for these things to
take a number of years to resolve," he said.
Arconic also on Monday reported a third-quarter profit of $119
million, down roughly 28% from a year ago and shy of analysts'
expectations. Revenue rose 3% to $3.2 billion, but the company
missed analysts' per-share profit expectation.
The company increased its revenue guidance for the year to $12.6
billion to $12.8 billion, compared with its prior forecast of $12.3
billion to $12.7 billion.
--David Benoit and Allison Prang contributed to this
article.
Write to Bob Tita at robert.tita@wsj.com
(END) Dow Jones Newswires
October 23, 2017 16:42 ET (20:42 GMT)
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