Alcoa splitting its metals segment from its better performing automotive and

While demand for Alcoa manufactured products for airplanes and cars has remained strong, the company has been pummeled by lower aluminum prices.

The transaction was expected to close in the second half of 2016. All shareholders will own shares of both companies once the split occurs. This deal brings out tremendous value and I will be speaking to Klaus Kleinfeld this morning on Squawk on the Street and again on Mad Money to flesh out the two new businesses. The Value-Add Company will be named prior to closing. “After steering the Company through the deep downturn of 2008, we immediately went to work reshaping the portfolio”. The upstream business is now built to win throughout the cycle. Through a series of acquisitions, the company says it is well positioned to take advantage of the growing aerospace and automotive markets in the years to come. It will also retain the Alcoa name.

After the planned split, Kleinfeld will lead the as yet unnamed company focusing on engineering products. It will be committed to disciplined capital allocation and prudent return of capital to shareholders. Alcoa’s third-quarter earnings are scheduled to be released this afternoon.

The decision comes in the wake of a global oversupply in aluminum markets, caused by flagging growth in China, where the price of the metal has fallen by 17 percent this year.

The Value-Add Company will comprise of Alcoa’s technology-driven products, according to the news release.

The latter would target an investment grade rating for its debt and the latter a non-investment grade rating, management said in a statement. Additionally, the Upstream business has achieved productivity gains of approximately $3.9 billion between 2009 and 2014.

The downstream company will have about 43,000 workers, with sales of $14.5 billion and Ebitda of about $2.2 billion in the year through June 30. The aerospace market accounts for about 40% of the pro-forma revenues for the value-add company.

Meanwhile, a 25% drop in aluminium prices since last September has pushed benchmark London Metal Exchange prices to six-year lows.

As the world has developed new technology and needs, demand for aluminum and Alcoa’s traditional commodities has declined in favor of stronger, lighter, more durable materials such as titanium. Automotive revenues are expected to increase 2.4 times from 2014 to $1.8 billion in 2018.