Alcoa to split into two companies; shares surge

28 Sep 2015 | Author: | No comments yet »

Alcoa splitting into 2 companies.

NEW YORK — Alcoa will split into two independent companies, separating its bauxite, aluminum and casting operations from its engineering, transportation and global rolled products businesses. New York-based Alcoa said on Monday it plans to separate its primary products business from its value-added, higher-margin operations, which have gotten a big boost in recent years from deals to supply the automotive sector with lightweight aluminum parts. Its commodities-led company will adopt the Alcoa name, and bring together its five major product lines—bauxite, alumina, aluminum, casting, and energy—under one corporate roof. That leaves most of its Canadian operations – centred on three aluminum smelters in Quebec – falling into the legacy commodity company, which will retain the name Alcoa and be publicly listed; the new high-tech-oriented company will also be listed but has yet to be named. The other company will focus on engineered products, which includes the automotive and aerospace segments. “In the last few years, we have successfully transformed Alcoa to create two strong value engines that are now ready to pursue their own distinctive strategic directions,” Chairman and CEO Klaus Kleinfeld said in a statement.

Other companies, notably Rio Tinto Alcan Inc., have also been trying to cope with the downturn, cutting production and closing older, less efficient assets. The other entity, dubbed “the Value-Add Company,” will consist of Alcoa’s newer—and possibly more promising—supply to an aerospace industry that has turned to lightweight titanium for their planes. Currently, Alcoa does bauxite mining, alumina refining and production at 64 plants around the world – the so-called upstream operations – that employ about 17,000 people.

Alcoa said a big chunk of the company’s revenue will come from the aerospace industry, through market leadership in areas such as jet engine and industrial gas turbine airfoils and aerospace fasteners. Alcoa pointed out that the value-added portfolio’s contribution to after-tax operating income has more than doubled to 51 per cent in 2014 from 25 per cent in 2008. The move comes as Alcoa has struggled with the price for raw aluminium remaining under pressure as China floods the global markets with steel, aluminium and other industrial metals. These moves could be seen as a response to the current market for aluminum that has seen prices drop to under $1,700 a ton, down more than 10% since the start of the year due to an over-supply of industrial metals from China.

Last year, the company struck a long-term agreement with the provincial utility for its three smelters after it threatened to close them in October, 2013, if Hydro-Québec refused to offer lower rates. Earlier this month, Yahoo Inc’s plan to spin off some $US23 billion worth of shares in Alibaba Group Holding Ltd tax-free was dealt a setback after receiving word that the Internal Revenue Service wouldn’t approve it. Companies from industrial conglomerate Danaher Corp. to technology giant Hewlett-Packard Co. have announced plans to break up their businesses recently.

Hewlett-Packard is in the process of splitting its slumping personal computing unit and its better performing servers, software and consulting services unit.

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