`Dear Mr. Singer': The Strange Letter That Cost a CEO His Job

(Bloomberg) -- The letter to billionaire investor Paul Singer was unusual, to say the least. Stranger still was the accompanying gift: an Adidas soccer ball.

Klaus Kleinfeld’s personal message -- full of innuendos about Singer’s supposed partying in Berlin during the 2006 soccer World Cup -- was made public late Wednesday, days after he stepped down as Arconic Inc. chief executive officer as the board said he’d shown ‘‘poor judgment.’’

But even before Kleinfeld fired off the letter to Singer, the most combative proxy fight of the season was getting heated, touching off a boardroom tussle that’s reverberated through the old Alcoa Corp. empire.

The missive came less than three months after Singer’s Elliott Management Corp. called for Kleinfeld’s ouster. In the interim, the aluminum-parts maker and its activist investor traded barbs about voting pacts and ‘‘governance horrors’’, argued over valuation and dragged other big shareholders into their conflict.

It came to a head -- for Kleinfeld at least -- with the letter, which referenced show tunes and a native American Indian headdress alongside the unique souvenir. Elliott, for its part, has said that while Kleinfeld leaving is a ‘‘necessary first step’’, it will continue to pursue four board seats at Arconic’s annual meeting, scheduled for May 16.

Alluding to Singer’s attendance at the soccer tournament, Kleinfeld suggested the investor made memories at the games that could be “lastingly legendary,” including belting out ‘‘Singing in the Rain’’ in a water fountain, according to a copy of the letter obtained by Bloomberg Wednesday and later released publicly by Elliott.

In an April 17 statement, New-York based Elliott denied the implications made by Kleinfeld as “based on completely false insinuations, a threat that we took seriously and about which we immediately and privately informed the board.”

Klaus’s Letter

The undated correspondence, with Kleinfeld’s name as letterhead, begins:

“Dear Mr Singer,

“In the last eighteen months, we have enjoyed the unique attention and unlimited pleasure of multiple exchanges with various representatives of yours in every such way remarkable firm. Unfortunately, we have not yet had the pleasure to meet. More than once I have been wondering what a special person the founder of such a firm must be.

“It was much to my delight when I recently learned from Berlin what a phenomenal soccer enthusiast you must be. Quite a few people who accompanied you in Berlin in 2006 during and especially after the many matches you attended are still full of colorful memories about this obviously remarkable time; it indeed seems to have the strong potential to become lastingly legendary. How you celebrated your soccer enthusiasm and the ‘great time’ you must have had in your Berlin weeks -- unforgettable without a doubt -- left a deep impression on them.”

Elliott Response

Elliott confirmed the accuracy of the letter and provided a copy of the firm’s initially private response.

In the April 12 reply sent to Arconic’s board, Elliott General Counsel Richard B. Zabel wrote that the letter arrived April 11 via Arconic’s messenger service from the company’s offices, and questioned whether it was really sent by Kleinfeld, and whether the other directors were aware of its existence. 

“While much of what it says doesn’t make sense, we do understand Dr. Kleinfeld to be making veiled suggestions that he might intimidate or extort Mr. Singer based on Mr. Singer’s family trip to Germany in 2006 when he attended the World Cup,” Zabel wrote. “This is highly inappropriate behavior by anyone and certainly by the CEO of a regulated, publicly traded company, in the midst of a proxy contest, and it raises a number of obvious issues.” 

A representative of Arconic declined to comment Wednesday.

FIFA Ball

The soccer ball -- which Kleinfeld described as the official match ball of the “FIFA World Championships 2006” -- was sent as “a token of my appreciation to learn about this completely ‘other side’ of you,” Kleinfeld wrote.

The single-page letter concluded with this post-script:

“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.”

Key Target

Kleinfeld, 59, was a key target of Elliott’s activist campaign since it went public with criticisms in late January. Elliott has suggested Larry Lawson, former CEO of Spirit AeroSystems Holdings Inc., as a potential new chief. The hedge fund owns 13.2 percent of Arconic, which was created last year when former parent Alcoa spun off its jet- and auto-parts operations. Elliott had previously targeted Alcoa, filing an activist 13D in November 2015.

Until Kleinfeld’s removal over the letter on Monday, Arconic had stood by its CEO, pointing to his track record of diversifying the old Alcoa and undertaking last year’s separation into two companies. This week, Arconic named David Hess interim CEO. Hess was named to the board last month and is a former president of United Technologies Corp.’s Pratt & Whitney jet-engines unit.

Singer, a lawyer and soccer fan, founded Elliott in 1977. His firm today oversees more than $32 billion investing across strategies including long-short hedge funds, distressed credit, arbitrage, real estate, shareholder activism and private equity. Its other current public campaigns include mining giant BHP Billiton Ltd., Dutch paintmaker Akzo Nobel NV, and South Korean technology group Samsung Electronics Co.

--With assistance from Jack Kaskey

To contact the reporter on this story: Beth Jinks in San Francisco at bjinks1@bloomberg.net.

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Elizabeth Wollman, Tony Robinson