Down over 40% for the year and hurt by depressed aluminum prices, aluminum maker Alcoa Inc. (AA - NYSE) announced on Monday that the company plans to split into two publicly traded companies by the second half of 2016.
All outstanding shares of both companies will be owned by Alcoa shareholders, which are expected to qualify as a tax-free transaction.
Amidst the global aluminum glut, the aerospace and automotive divisions have been driving profit for Alcoa. Through its strength in areas such as jet engine and industrial gas turbine airfoils and aerospace fasteners, Alcoa said a big chunk of the company’s revenue will come from the aerospace industry. Due to the increased demand for aluminum-intensive vehicles, the value-add company is expected to benefit from a jump in automotive revenue. Auto makers buying aluminum from Alcoa, to make their cars lighter to comply with new fuel-efficiency standards, has been beneficial to the aluminum maker.
Alcoa's upstream company will maintain the Alcoa name and will include its aluminum-production, alumina-refining and bauxite-mining businesses. Since 2007, Alcoa has closed or curtailed 33% of its total smelting capacity. As China floods the global markets with steel, aluminum and other industrial metals, Alcoa has struggled with low prices for raw aluminum.
Alcoa is calling the other company its 'value-add' company. The value-add will include its engineered products and solutions, global rolled products plus its transportation and construction businesses.
Klaus Kleinfield, Alcoa Chief Executive, will lead the value-add company as chairman and CEO. Initially, Kleinfield will also chair the upstream company.
Contributed by Millennium Traders