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Former Alcoa CEO Klaus Kleinfeld on ESG-focused SPAC

Yahoo Finance’s Julie Hyman, Myles Udland, and Brian Sozzi speak with Constellation Corp. Acquisition I CEO, Klaus Kleinfeld about the company's SPAC and ESG investing.

Video Transcript


BRIAN SOZZI: Former long time Alcoa CEO, Klaus Kleinfeld, is back on top the C suite. Kleinfeld is on the hunt for his first acquisition as part of a new SPAC he has launched called Constellation Acquisition Corp. Klaus Kleinfeld joins us now. Klaus, good to see you this morning. Thanks for taking the time. One key component, just going through the prospectus on this one. ESG is very important for you. You're only going to consider companies that are ESG-minded. Why is that important to you?

KLAUS KLEINFELD: Correct. Well, [LAUGHS] actually, when you look at where the world is going and how many more people are understanding where the world is going, I think it makes absolutely no sense to invest into anything that doesn't qualify under ESG. ESG, for us, is what I would call a hygienic criteria. So there are other criteria that the target has to fulfill in addition to that. I mean, we are looking for a target that we believe is on its way to show a basic proven business model, which for me stands for a sustainable competitive advantage, a proven sustainable competitive advantage and growth. Those are really the things that we are looking for.

BRIAN SOZZI: Just going through the numbers and the perspectives, Klaus, a bit. It sounds as though you're more optimistic on finding a target in Europe as opposed to US, is that correct?

KLAUS KLEINFELD: Well, what happened is, I mean, the team that I build consists of people that I know for a long time, and have full trust, and lots of people with field experience. So we started looking into this almost a year ago. And we build what we call a target pipeline. And we were fishing in both ponds, we are fishing here in North America and we are fishing over in Europe. It just so happens that if I look at the target pipeline today, 2/3 of the target that we prequalified basically are the ones that are in Europe, and 1/3 is in the US. I think Europe has a lot of attractive targets that fall into this category that I just mentioned before.

MYLES UDLAND: And Klaus, it's Myles here. I'm curious. And you mentioned you started looking at this possibility about a year ago, are you surprised by the speed with which the SPAC boom has accelerated here? I mean, we had the dislocation of the pandemic, but I mean, I think I've seen almost 100 deals or 100 sponsors come to market in January.

KLAUS KLEINFELD: Yeah, how can you not be surprised by this? To be honest. But in a way, I mean, I think what happened-- I have been looking and observing the SPAC market also for a while. And frankly, if we would have had that conversation in, sometimes, mid-2019 or so, I would have probably said, I'm not sure the SPAC is for me and the team that we have. I mean, looking for sustainable businesses with great, great, great growth and opportunities, and long term investment opportunities also. What has happened here is a nice financial kind of tool box has been built around the SPACs, that allows people like us, who have a long track record, to see this works. This is good for us. It works for what we stand for. And we can do it. And I think it has attracted a lot of really top level teams and I think you would see the flight for quality is going to happen also in this SPAC space.

JULIE HYMAN: Klaus, it's Julie here. So I'm curious just to drill down into this a little bit more. If you look at a SPAC versus venture capital for example, or versus the other investment choices that you have when you put a group of investors together like this, why SPAC versus some of those other choices?

KLAUS KLEINFELD: Well, I mean, [LAUGHS] if I look at our target list, I mean, it became crystal clear when we started to-- because I think it's a good question, honestly, and it's a question that all of the target companies will have in the back of their mind. But when you look at some companies, for instance, you see the alternative in terms of selling to private equity. Private equity typically wants control of something. In our case if the company is on the right path we believe that we probably have to make a couple of tweaks and then this company can become a public company, some shareholders want to potentially cash out, some want to leave, some others want to reduce their position. There's a lot of flexibility in this. And accessing the capital market instead of being dependent on a few fiancees can be an advantage.

Some situations will not work. I mean, for instance, I believe that if you have a target that has to go through a substantial restructuring that might take a little while, and you can more easily do it if you are not in the public eye this will not work. So there are consolations that where it will work, magically will, and many, and that's the reason why you see so many SPACs. I believe. And then there are a few where it's probably not the right choice.

BRIAN SOZZI: Klaus, you really have a tremendous, I would say, a world view, a really look into how economies are doing here in the US, but in Europe, and even Asia, just based on your resume, and leading these big companies, Siemens, Alcoa, Arconic. How do you see the economic recovery going after the pandemic? Because it's completely detached from reality, I would say. And the stock market is trading really still near record highs, but corporate America is still struggling.

KLAUS KLEINFELD: Well, I think this is fascinating, and I'm already looking forward to three years from now where we look at this from a hopefully a relaxed perspective and the pandemic being behind us. But what it really has been doing is a lot of these things that we're seeing today are accelerations of trends that have existed before. I don't think we've seen anything that is completely new, but for instance, one big chunk of interesting targets for us are in the space of online. Online and logistics.

I mean, do we know that online is going to replace brick and mortar? We know it for years, but did we ever predict it to happen this fast? But COVID has accelerated it. The same thing is true for data. I mean, the very fact that we do this interview not live but over Zoom seamlessly, and the world is working, a lot of companies are working, all together like this. I mean, did we know that that's possible? Yes. But did everybody accept it? No. But will we go away from the comforts that it has? I don't think we will. So I think that there are-- I'm, by nature, an optimist, but I see a lot of potential, positive changes that will stick around and that have been accelerated. I mentioned data. I mean, we understand, now, how important data is, and there are quite a number of very interesting companies who are capitalizing on this.

BRIAN SOZZI: Yeah, it still amazes me, Klaus, how we can do these interviews even during these times. Well, we'll leave it there. Klaus Kleinfeld, really appreciate the time and good luck with the SPAC. Look forward to having you back soon.

KLAUS KLEINFELD: Thank you. Thank you. Looking forward to it. Thank you, Brian.