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Alcoa Splits into Two Independent Companies

Alcoa will be separated into two independent corporations, splitting its bauxite, aluminum and casting operations from its engineering, transportation and worldwide rolled products businesses. Alcoa Inc is based in New York with substantial operations in Pittsburgh.

The over 100 years old metals manufacturer has been dealing with a decline in its smelting business because of lower aluminum rates. The separation will build one company that will be concentrating on upstream products, which includes aluminum. Meanwhile, the other company will focus on engineered products, which consist of the automotive and aerospace segments.

Alcoa’s established business, the better performing bauxite and aluminum segments will keep the Alcoa name. On the other hand, the name of the engineered products company is still unknown.

The 127 years old company was the largest percentage earner on the benchmark S&P 500 index, despite U.S stocks declining largely last Monday.

The separation is part of a broader movement by companies to spin off units in an effort to increase stockholder value. Frequently, the strategy aids in freeing a strong segment of a company from a weaker part.

Alcoa Inc. is expecting the separation to be accomplished by the second half of the year 2016. The New York-based company has been in the industrial business in the US economy for  more than hundred years, dating its launching as the Pittsburgh Reduction Company in 1888.


Chairman and CEO Klaus Kleinfeld said in a statement, "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 Inc. has been turning its attention to its more profitable automotive and aerospace products, which also include titanium. Moreover, it has been shutting down the nonprofit aluminum smelters as a surplus of the material on the market weighs falling prices and profit.

Alcoa expanded a partnership with Ford Motor Company, wherein Alcoa will supply a stronger form of aluminum for auto body parts. The deal was announced in the middle of September, and the company is said to provide components for the 2016 model of the F-150 pickup—the best-selling US vehicle since 1982.

The amount that was spent to develop its three dimensional manufacturing capabilities in a technical center located in Pittsburgh is about $60 million.

After the planned separation, Kleinfeld will handle and serve as the CEO of the new company, which will focus on engineering products. Both companies will have their own board of directors, and complete management teams, which will be named in the months leading up to the separation.

Kleinfeld stated, "We believe both entities have gotten into a shape that they are competitive and sizeable and they can stand on their own."


Several companies have either separated over the last year or are planning to do so. eBay divided its expenses unit PayPal into another company. Meanwhile, Hewlett-Packard is in the process of separating its failing personal computing unit and its well performing servers, software and consulting services unit. Another company named Gannett is also planning to separate its sluggish publishing unit from its digital and broadcasting unit.

Alcoa’s stock shares increased 32 cents or 3.5% to US$9.39 during the early hours of trading last Monday. Alcoa’s shares have declined by 41% so far  this year.

According to an analyst, the company is already in the process of a shifting, which also involves acquisitions to beef up its business for such sectors including aerospace and autos.

"The commodity business was a significant drag, not only on valuation, but on the resources of the company," an analyst from Sterne Agee CRT said.

Alcoa did not provide information on the price of carrying out the separation, which it stated should be tax free for stockholders. It is aiming an investment grade credit rating for its “value-added” business and “strong non-investment grade” rating for its legacy business.

The company stated that since December 31, 2014, its allowance has been underfunded by about $3.3 billion. According to their executives, Alcoa will distribute liability and pension liabilities “in a manner that is prudent for the two businesses to have the balance sheet” the company is aiming.

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