Alcoa to split into two publicly traded companies

Alcoa will split into two independent companies, one focused upstream on bauxite, alumina and aluminium, and the other downstream on high-tech materials across a range of products and markets, the company said on September 28.

Alcoa will split into two independent companies, one focused upstream on bauxite, alumina and aluminium, and the other downstream on high-tech materials across a range of products and markets, the company said on September 28.

The company’s board of directors has unanimously approved the plan, and the transaction is expected to be completed in the second half of 2016.

“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,” Alcoa’s chairman and ceo Klaus Kleinfeld said in a statement.

Upstream Company
Alcoa’s primary products, including bauxite, alumina and aluminium, will become part of the new Upstream Company, targeting a strong non-investment grade rating and operating under the Alcoa name.

The company will be a leader in bauxite mining, alumina refining and aluminium production, with about 17,000 employees, it said.

The Upstream Company will operate 64 facilities worldwide, including the world’s largest bauxite mining portfolio, with a 19th percentile position on the global cost curve, as its mining reserves provide a consistent supply of low-cost bauxite.

Alcoa’s alumina refining system is in the 25th percentile of the global alumina cost curve, and is positioned to serve growing demand from Asia, the Middle East and Latin America.

The split company will be the world’s fourth-largest aluminium producer, sitting in the second quartile of the global cost curve, supported by a value-add casthouse network and portfolio of energy assets.

Alcoa has reshaped its alumina and primary metals segments in recent years, closing, divesting or curtailing 1.4 million metric tonnes, or 33%, of its total smelting operating capacity since 2007. Alcoa has dropped eight points on the global aluminium cost curve since 2010.

“We have an enviable bauxite position and are unrivalled in alumina, we have optimised aluminium, flexed our energy assets, and turned our casthouses into a commercial success story,” Kleinfeld said. “The upstream business is now built to win throughout the cycle.”

Value-Add Company
Alcoa’s second new division, provisionally known as Value-Add Company, will be driven by technology and innovation, focused on high-performance, multi-material products in growth markets. The company will target an investment-grade rating, and will be named before the transaction is closed.

The overall contribution of the Value-Add portfolio to Alcoa’s after-tax operating income has more than doubled from 25% in 2008 to 51% in 2014.

The Value-Add Company will have about 43,000 employees across 157 locations.

Alcoa expects the company to grow by increasing its share in rapidly growing end markets, particularly in the aerospace industry. It also intends to capitalise on growing demand for aluminium-intensive vehicles.

Kleinfeld will be chairman and ceo of the Value-Add Company, and will initially be chairman of the Upstream Company to ensure an effective transition.

Each company will have an independent board of directors, including members of the existing Alcoa board.

When the transaction is completed, Alcoa shareholders will own all the outstanding shares in both companies. The separation is expected to qualify as a tax-free transaction to Alcoa shareholders.

Charlotte Radford
Twitter: @CRadford_MB