Exclusive: Elliott steps in to boost Arconic's sale process - sources

By Harry Brumpton and Liana B. Baker

(Reuters) - Elliott Management Corp, the activist hedge fund that sits on Arconic Inc's board, is working to address potential liabilities weighing on the sale process for the U.S. aluminium products maker, according to people familiar with the matter.

Elliott's move comes after Arconic rejected an acquisition offer of more than $11 billion from Apollo Global Management LLC as inadequate. Elliott hopes its intervention can help Arconic fetch a higher price, the sources said on Thursday.

Arconic shares rose 3.3 percent to $21.51 on the news, giving the company a market capitalisation of $10.4 billion.

The potential legal liabilities stem from Arconic's building and construction systems division, which makes facades, windows and framing products. Its Reynobond PE panels were used in the cladding of the London's Grenfell Tower apartment complex, where more than 70 people were killed last year in a blaze.

Elliott has proposed a structure that would place liabilities of Arconic's cladding business in a separate entity, the sources said. The technique, called ringfencing, has been used by other industrial conglomerates seeking to limit exposure to similar legal claims, the sources added.

Elliott would also roll its 11 percent stake into the winning bid for the company, the sources said. This will allow Elliott to retain its equity in the company while other shareholders get cash.

Arconic has asked Apollo, as well as a buyout consortium led by Blackstone Group LP and Carlyle Group LP , to now submit new offers for the company on Friday, the sources said. Arconic's board plans to meet next week to review the offers, one of the sources added.

The sources asked not to be identified because the matter is confidential. Arconic, Blackstone and Carlyle did not immediately respond to requests for comment, while Elliott and Apollo declined to comment.

A deal for Arconic would be one of the largest leveraged buyouts of the year. It would come after U.S. President Donald Trump's imposition of aluminium tariffs this year drove up some costs for Arconic, which makes aluminium components for cars and airplanes.

Arconic, which was spun out of Alcoa Corp in 2016, said in February it would carry out a "strategy and portfolio review." It said last month in its third-quarter earnings announcement that it was "extending the scope and duration of this activity to address additional scenarios," and that it expected to complete its review in the fourth quarter.

Arconic reported a better-than-expected quarterly profit last month and raised its full-year earnings forecast, driven by higher demand for aluminium parts used by its airplane customers, including Boeing Co and Airbus SE .

(Reporting by Harry Brumpton and Liana B. Baker in New York; Editing by David Gregorio)