Alcoa set to split business in two

The company would have had revenues of $US13.2 billion in the year ended June 30.

The almost 127-year-old company announced that it would separate its legacy commodity side, which is to inherit the Alcoa name, from its newer, bigger-ticket businesses, which serve markets such as aerospace and automotive.

The second, titled Value-Add company, will focus on selling multi-material products, and have around 43,000 staff and revenues of $14.5 billion. The metals maker has been dealing with a downturn in its smelting business because of lower aluminum prices.

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

The company also said that as of December. 31 2014, its pension was underfunded by about US$3.3 billion. Alcoa will host conference call Monday at 8:00 am, September 28.

Alcoa under Kleinfeld has acquired Firth Rixson for $2.85 billion and RTI worldwide Metals for $1.5 billion, as well as doing deals for the fastener business of TransDigm Group and auto supplier TITAL. The company would be broken down into an upstream and a value-add company.

Upon completion of the transaction, Kleinfeld will lead the value-add company as chairman and CEO. Alcoa shares rose 6.4 percent in pre-market trading on the news. The stock has fallen 42 percent this year alone. But the move is noteworthy in that it helps shed light on where the company is headed as competition in the organics business intensifies. Firms like Danaher Corp and Hewlett-Packard Co have said that they will be taking this route. As for the upstream business, the investment bank is more optimistic than JP Morgan, as it said that the outlook for the segment remains positive given the cost-cutting initiatives-including smelting capacity curtailments- being undertaken by the company.

The two previously advised Alcoa on a heap of transactions.

John Tumazos, an independent metals analyst based in Holmdel, N.J., said aluminum prices are about 44 cents a pound lower than they were a year ago.

“We have repositioned the upstream business; 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 continued.

Monday’s announcement that Alcoa Inc.

The split is expected to occur in the second half of next year. With the support of the Board members, Alcoa’s division into two “leading-edge” companies shall be undertaken; in the words of the CEO, “each with distinct and compelling opportunities, and each ready to seize the future”.

The Value-Add Company will comprise of Alcoa’s technology-driven products, according to the news release. It also spent about $60 million to expand its three-dimensional manufacturing capabilities at a technical center in the Pittsburgh area.