Here's Why Arconic Fell As Much As 11.3% This Morning

The share move swiped over $1.2 billion off of the industrial company's market cap.

Maxx Chatsko
Maxx Chatsko
Jun 26, 2017 at 11:48AM
Energy, Materials, and Utilities

What happened

Shares of metal alloy manufacturer Arconic (NYSE:ARNC) fell over 11% today after the company was linked to the Grenfell Tower fire in London that killed 79 people earlier this month. A developing news story over the weekend revealed emails showing that a sales manager from the company knowingly sold combustible cladding for the renovation of the high rise in 2014. The cladding was largely responsible for allowing the blaze to burn out of control.

Worse, Arconic's own marketing brochures list three types of Reynobond panels with specific restrictions and use cases. Only one has a non-combustible core that is recommended for structures above 30 meters tall. Grenfell Tower is over 60 meters tall. As of 11:09 a.m. EDT, the stock had settled to a 7% loss. 

A businessman with his head in the sand, a not-so-good response to a crisis.

Image source: Getty Images.

So what

Investors and traders appear to be worried that Arconic's documented role in the disaster will (eventually) be followed up with fines. Although the company was still flying exclusively under the Alcoa flag when the cladding was supplied, the liabilities are still owned by Arconic.

It may be possible that the sales representative didn't actually know the height of Grenfell Tower. While that may be difficult to believe, the emails do seem to show that the number of parties involved in the chain of command obscured which entity -- supplier, distributor, contractor -- had the responsibility of making the final decision.

No matter the reason for the oversight, the political and social environment following disaster make it increasingly likely that (1) regulatory changes will be made to clearly identify when such decisions need to be made to comply with laws, and (2) someone will be found at fault. That someone is likely to be, at least partially, Arconic.

Now what

The news story is still unfolding, so it's important to note that possible fines haven't been discussed -- and may not be for some time. Arconic has been careful to deny any fault in the matter, but it may be best to accept the mistake, pay any potential future fines, make internal changes to reduce risks to human life in the future, and begin to move on from this unfortunate event.