By Zachary Laubernds,
Money and Investing Writer
On September 28 Alcoa Inc. (NASDAQ: AA) a global leader in lightweight metals technology, engineering and manufacturing, according to its website, announced that it would split its assets into two separate, independently traded companies.
This move by the world’s third largest aluminum producer came as a shock to some.
The reason behind the split as explained by the company’s executives, was to allow shareholders to have two distinct stand alone, “Value-Creating Investment opportunities.” CEO and chairman of Alcoa, Klaus Kleinfield, explained that Alcoa has been looking into the possibility of a split for some time now.
The company has said that this action was the best decision for shareholders and Alcoa itself.
Kleinfield said that the decision to move forward with the split was made in part due to the recent acquisition of aerospace industry giant Firth Rixson and key partnerships with titanium manufactures Tital and RTI (NASDAQ: RTI).
According to Kleinfield Alcoa has been large enough to make a move such as this for quite a while, but it is believed that these relationships are only part of the reason Alcoa has decided to divide itself.
Shareholders have been unhappy for some time about the unimpressive returns from Alcoa.
These low returns, which are partially due to the low price of commodities, have put financial strain on the world’s number three lightweight medal manufacturer.
The strain was not felt on the books as much as it was in the markets. When divided up, the portion of the company that will remain Alcoa brought in $13.2 billion between June 2014 and June 2015.
Whereas the portion of the company set to split from Alcoa brought in $14.5 billion in the same period.
The new company, which has yet to be named, is set to have about two and a half times as many employees as the portion that will keep the Alcoa name.
Although Kleinfield will remain chairman of Alcoa during the transition period he will become the CEO of the company when the split is finished in early 2016.
Alcoa has yet to name Kleinsfield’s successor as chief operating officer.
As of now it appears that both companies will produce an assortment of lightweight metals, contrary to some beliefs that Alcoa will revert back to just aluminum production.
The company that is retaining the Alcoa namesake has already set its sights on several smaller aerospace and automotive companies that could potentially help strengthen the business.
Alcoa is banking on the recent rise in the use of new aluminum alloys in automobiles to keep the company towards the head of the pack in the lightweight metals industry.
This new automotive aluminum craze, along with a new process called Micromill that Alcoa introduced last December, which allows aluminum to be rolled in 20 minutes rather than the 20 days it takes to roll conventional aluminum (with the added benefit of a 30 percent increase in strength), look to have Alcoa in a good position prior to their big split.
It’s not often that you see an industry leader make a move like this, so it’ll be interesting to see the outcome of this big split.
A version of this article appeared in the Tuesday, October 20th print edition.
Contact Zachary at