UPDATE 1-Alcoa to split into two companies by second half of 2016

28 Sep 2015 | Author: | No comments yet »

Alcoa splitting into 2 companies.

NEW YORK (AP) — Alcoa will split into two independent companies, separating its bauxite, aluminum and casting operations from its engineering, transportation and global rolled products businesses. 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. New York-based Alcoa’s traditional smelting business has been hurt by a ballooning surplus of aluminum, which has caused prices to sink and deepened the industry’s worst crisis in years. At the same time, the company has bet on growth from higher-margin titanium and high-strength aluminum sales to the aerospace industry, citing a growing order book for airplane production and renewed global spending on automobiles.

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. Airplane manufacturers have turned to lightweight titanium from aluminum and automakers to new, strong aluminum alloys instead of high-strength steel to improve performance and fuel efficiency. Efforts by the world’s third-largest producer of aluminum to address these diverging trends resulted in conflicting messages for investors, according to sources close to the company.

This company will also be responsible for manufacturing aluminum alloys for commercial trucks, underpinned by its position as the supplier of the material to Ford’s best-selling line of F-150 light-weight trucks. 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. Chief Executive Officer Klaus Kleinfeld will become CEO of the new, unnamed entity and will remain chairman of Alcoa throughout the transition period. 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. 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.

The legacy business had revenue of US$13.2 billion in the 12 months ended June 30 and EBITDA of US$2.8 billion, with 64 facilities and around 17,000 workers. Companies from industrial conglomerate Danaher Corp. to technology giant Hewlett-Packard Co. have announced plans to break up their businesses recently. The new firm created by the split had revenue for the same period of US$14.5 billion, with EBITDA of US$2.2 billion, 43,000 workers and 157 facilities.

Through a series of acquisitions, the company says it is well positioned to take advantage of growing aerospace and automotive markets in the years to come. Recent purchases include aerospace and defense industry-focused titanium supplier, RTI International Metals Inc, for US$1.3 billion and privately-held TITAL, which makes titanium and aluminum structural castings for aircraft engines and airframes. Last December, Alcoa unveiled a process it calls Micromill to produce high-strength aluminum alloy, targeting automakers who are seeking an alternative to heavier steel. In mid-September Alcoa announced a deal with Ford Motor Co to provide multiple components for the 2016 model F-150 pickup, the best-selling U.S. vehicle since 1982, using Micromill. An unprecedented plunge this year in premiums –surcharges paid for physical delivery – to their lowest in 3-1/2 years have posed the biggest threat to producers’ margins since the 2008 financial crisis.

Alcoa Inc has closed or curtailed 170,000 tons of annual output this year as part of a review of 500,000 tons of smelting capacity announced in March.

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