Alcoa to split into two separate entities

METALS firm Alcoa said yesterday that it would split into two publicly traded entities, acknowledging that its legacy aluminium operations and higher-value and automotive businesses were diverging and no longer compatible.

New York-based Alcoa’s traditional smelting business has been hurt by a ballooning surplus of aluminium, which has caused prices to sink and deepened the industry’s worst crisis in years.

At the same time, the company has bet on growth from higher-margin titanium and high-strength aluminium sales to the aerospace industry, citing a growing order book for airplane production and renewed global spending on cars.

Airplane manufacturers have turned to lightweight titanium from aluminium and car makers to new, strong aluminium alloys instead of highstrength steel to improve performance and fuel efficiency.

Efforts by the world’s thirdlargest producer of aluminium to address these diverging trends resulted in conflicting messages for investors, according to sources close to the company.

The split was expected to take place in the second half of 2016 and the legacy aluminium firm would retain the name Alcoa, the company said.

Chief executive Klaus Kleinfeld is to become chief executive of the new, unnamed entity and is to remain chairman of Alcoa throughout the transition period.

The company did not provide a timeline for choosing a chief executive for Alcoa after the split. The division of the company did not need to be approved by shareholders, sources familiar with the matter said. The legacy business had revenue of $13.2 billion (R183.32bn) in the 12 months ended June 30 and earnings before interest, taxes, depreciation and amortisation (Ebitda) of $2.8bn, with 64 facilities and around 17 000 workers.

The new firm created by the split had revenue for the same period of $14.5bn, with Ebitda of $2.2bn, 43 000 workers and 157 facilities.

Through a series of acquisitions, the company says it is well positioned to take advantage of growing aerospace and automotive markets years to come.

About 40 percent of the revenue for the new “value-added” business came from the aerospace sector – a key area targeted for growth – for that period.

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While Alcoa has tried to figure out what to do with its legacy business, including selling off some of its more traditional and costly smelting facilities, it has also been investing heavily in acquisitions to bolster its aerospace and automotive operations.

Recent purchases include aerospace and defence industry-focused titanium supplier, RTI International Metals, for $1.3bn and privately-held Tital, which makes titanium and aluminium structural castings for aircraft engines and airframes.

Falling aluminium prices led to Alcoa missing secondquarter earnings estimates and, year to date, the company’s stock is down more than 42 percent. The company has also been working to improve its own in-house technology. Last December, Alcoa unveiled a process it calls Micromill to produce high-strength aluminium alloy, targeting vehicle makers who are seeking an alternative to heavier steel. Micromill-made aluminium goes from molten metal to cooled, coiled metal in 20 minutes versus the 20 days it takes to roll conventional aluminium. It is 30 percent stronger than regular aluminium, and far easier to shape into more intricate forms, including inside panels for car doors or fenders.

In mid-September Alcoa announced a deal with Ford to provide multiple components for the 2016 model F-150 pickup, the best-selling US vehicle since 1982, using Micromill.

Alcoa has said it is in talks with eight other car makers on using Micromill technology.

Meanwhile, a 25 percent drop in aluminium prices since last September has pushed benchmark London Metal Exchange prices to six-year lows. – Reuters VODAFONE Group ended talks about an exchange of assets with John Malone’s pay television ( TV) giant Liberty Global, denying the wireless company a chance to fix its European business that’s been threatened by price wars. Shares of the mobile carrier fell to a 10-month low.

The deal stalled on differences over the value of Liberty’s Virgin Media unit in the UK and businesses including each company’s operations in Germany, according to a person familiar with the matter.

Vodafone was also concerned about Liberty’s growing wireless presence, the person said, asking not to be identified because talks were private. Vodafone, the world’s second-largest cellphone company, announced the termination of discussions yesterday, almost four months after disclosing the talks.

A Liberty Global spokesman confirmed that the talks had ended. People familiar with the matter said earlier this year the companies were discussing a range of potential transactions including an asset swop, combining their western European businesses, or an outright merger.

Liberty Global and Vodafone together have more than $80 billion (R1 trillion) in annual revenue and almost $130bn in combined market capitalisation. Malone said in an interview this month that the companies were not able to overcome a deadlock in the talks he described as a “tennis match” of ideas.

“Conceptually there could be some real value created but realistically we haven’t been able to figure out a way to do that, that’s mutually successful,” the 74-year-old said at the time.

Vodafone shares fell as much as 4.2 percent and dropped 3.6 percent to 209.80 (R4 419.89) pence at 10am in London. Liberty Global lost 0.5 percent to $47.96 in New York on Friday.

Vodafone is giving up an opportunity to gain pay-TV and broadband businesses in market such as the UK and Germany as it seeks to reduce its reliance on a wireless business that has suffered from a fierce price war in Europe. For Liberty Global, a deal with Vodafone would have deepened a shift in strategy at a media company that until recently has shied away from owning wireless networks.

While Liberty Global was not closing the door on a future deal, the companies were not discussing a full merger, the person said. Representatives for Vodafone and Liberty Global declined to comment.

Without a deal, Vodafone chief executive Vittorio Colao may choose to add TV and internet services to his mobile networks in Europe. – Bloomberg

Micromill-made aluminium is 30% stronger than regular aluminium and far easier to shape.