Alcoa To Separate Into Two Public Companies

(RTTNews) - Aluminum producer Alcoa Inc. (AA) Monday said its Board of Directors has unanimously approved a plan to separate into two independent, publicly-traded companies. The transaction is expected to be completed in the second half of 2016. The stock climbed over 5 percent in pre-market activity.

The globally competitive Upstream Company - which will retain the name Alcoa - will comprise five business units that today make up Global Primary Products - Bauxite, Alumina, Aluminum, Casting and Energy.

The Value-Add Company - which will be named prior to closing of the deal - will include Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions.

At that point Alcoa shareholders will own all of the outstanding shares of both the Upstream and Value-Add Companies. The separation is intended to qualify as a tax-free transaction to Alcoa shareholders for U.S. federal income tax purposes.

Upon completion of the transaction, Klaus Kleinfeld will lead the Value-Add Company as Chairman and Chief Executive Officer. He will also serve as Chairman of the Upstream Company for the critical initial phase, ensuring a smooth and effective transition.

Each company will have its own independent board of directors that will include members of the current Alcoa Board. Full management teams and boards for both companies will be named in the coming months.

The Upstream Company will be a cost-competitive industry leader in bauxite mining, alumina refining and aluminum production. Its footprint will include 64 facilities worldwide, and around 17,000 employees. Revenues for the 12 months through June 30, totaled $13.2 billion, with $2.8 billion in Earnings Before Interest, Tax, Depreciation and Amortization or EBITDA. It will be committed to disciplined capital allocation and prudent return of capital to shareholders, the company added.

Once separated, the Value-Add company will be a premier provider of high-performance multi-material products and solutions with 157 globally diverse operating locations and around 43,000 employees.

Pro-forma revenues for the Value-Add Company for the 12 months through June 30, 2015 totaled $14.5 billion, with $2.2 billion in pro-forma EBITDA.

Alcoa said EBITDA margins for the value-add portfolio have increased from 8 percent in 2008 to 15 percent in 2015 on a pro-forma basis for the twelve months through June 30, 2015.

The overall contribution of the value-add portfolio to Alcoa's after-tax operating income has more than doubled from 25 percent in 2008 to 51 percent in 2014.

The Value-Add Company will focus on fast growing end markets and try to leverage significant customer synergies across the midstream and downstream portfolios. The company will be a differentiated supplier to the aerospace industry.

Approximately 40 percent of the company's pro-forma revenues for the 12 months through June 30, 2015 came from the aerospace market. The company will also capture demand for aluminum intensive vehicles through Alcoa's recent rolling mill capacity expansions and the commercialization of breakthrough technologies like the Micromill.

Additionally, the Value-Add Company will be an unparalleled leader in aluminum commercial truck wheels.

Alcoa believes that as independent entities, each company will be positioned to capture opportunities in increasingly competitive and rapidly evolving markets. The separation will enable them to pursue their own independent strategies.

AA, which closed down 1.2 percent on Friday at $9.07, surged 5.5 percent in pre-market activity.