Alcoa AA has divulged its executive management structure for the earlier announced separation of its smelting and refining business from those that cater to aerospace and automotive markets.
Alcoa, in Sep 2015, said that it is splitting into two standalone, publicly-traded companies to shore up growth amid a challenging operating environment. The separation will result in the creation of two independent, Fortune 500 entities: “The Upstream Company” and “The Value-Add Company.” The Upstream Company will consist of bauxite, alumina, aluminum, casting and energy business units. The Value-Add Company will include global rolled products, engineered products and solutions, and transportation and construction solutions businesses.
Alcoa has named Roy Harvey CEO of the Upstream Company. Harvey is the incumbent President of Alcoa’s Global Primary Products business. William Oplinger, Alcoa’s Executive Vice President and Chief Financial Officer (CFO), will serve as the CFO of the Upstream Company.
Alcoa CEO Klaus Kleinfeld will lead the Value-Add Company as Chairman and CEO after the separation. Kleinfeld will also serve as Chairman of the Upstream Company during the initial phase to ensure a smooth transition. Ken Giacobbe, who is currently the CFO of Alcoa’s Engineered Products and Solutions business, will serve as the CFO of the Value-Add Company.
The executive management appointments are expected to become effective upon the completion of the spilt in second-half 2016. The separation will mark the completion of Alcoa’s multi-year transformation. The split will allow both companies to pursue their own independent strategies.
Alcoa’s shares rose around 1.4% in the trading session on Nov 24, before closing the day at $9.09. The company’s shares are down roughly 40% so far this year.
The separation will provide shareholders with value-creating investment opportunities. Upon transaction closure, shareholders of Alcoa will own all of the outstanding shares of both the companies. The separation has been planned as a tax-free transaction to Alcoa shareholders for U.S. federal income tax purposes. After the separation, the Upstream Company will operate under the Alcoa moniker while the name of the Value-Add Company will be determined before the transaction closing.
Post separation, the Upstream Company will be a highly competitive leader in bauxite, alumina and aluminum production with a world-class asset base including the world’s biggest bauxite mining portfolio. The company will be well placed to meet the rising global demand for aluminum which is anticipated to increase 6.5% this year and double between 2010 and 2020. The Upstream Company will be the fourth-biggest aluminum producer in the world and will also have world’s largest alumina refining system.
On the other hand, the Value-Add Company will be a leading provider of high performance multi-material products and solutions in attractive markets including the fast-growing aerospace market. The aerospace market represents roughly 40% of its pro-forma revenues. The Value-Add Company will also be well placed to address demand for aluminum intensive vehicles through Alcoa’s rolling mill capacity expansions and the commercialization of breakthrough Micromill technology.
Alcoa is grappling with a weak pricing environment. Lower aluminum prices continue to batter the company’s legacy aluminum smelting business as witnessed in third-quarter 2015. Alcoa's primary metals business swung to a $59 million loss in the quarter versus a profit of $245 million a year ago, hit by lower aluminum prices and a decline in regional premiums. Alcoa envisions pricing pressure to continue into the final quarter of 2015.
Alcoa is a Zacks Rank #3 (Hold) stock.
Better-ranked companies in the mining space include Coeur Mining, Inc. CDE, NovaGold Resources Inc. NG and Richmont Mines Inc. RIC. While both Coeur Mining and NovaGold sport a Zacks Rank #1 (Strong Buy), Richmont carries a Zacks Rank #2 (Buy).
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