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Alcoa splitting into 2 companies, separating core aluminum, components

| Monday, Sept. 28, 2015, 8:13 a.m.
Sidney Davis | Trib Total Media
Alcoa Corporate Center on Pittsburgh's North Shore is seen in this file photo from March 2015. The company announced Sept. 28, 2015 that it would split into two independent companies.

Alcoa Inc. will split into two independent companies, separating its aluminum production business that's been dogged by low prices from a faster-growing segment that supplies components to the aerospace and automotive industries.

It's a move that corporations make to unlock value in one part of a company that may be hampered by poor performance in another part. Alcoa's stock is down 46 percent since hitting a 52-week high in November as Alcoa has faced challenges in its commodity aluminum business.

The metals maker, which is based in New York but has significant corporate and research functions in Pittsburgh, said Monday that it expects the split into independent, publicly traded companies by the second half of 2016.

Alcoa has not determined which of the new companies its Pittsburgh operations will be organized under, spokeswoman Lori Lecker said. Alcoa hasn't decided where the companies will be headquartered, she said.

Alcoa's Pittsburgh operations employ about 2,000 people at a corporate center on the North Shore, a technical center in Upper Burrell and Traco Co., a window manufacturer in Cranberry. Lecker said no decisions have been made about the company's workforce in the region.

“We'll be working through them in the coming months and will be keeping our employees closely informed,” she said. “Until the separation is complete, it's business as usual.”

Alcoa owns the former RTI International Metals, a Moon-based titanium manufacturer that it acquired in July. RTI, which employed about 70 people at its headquarters, will be part of the new company that makes components. That downstream business, which includes Alcoa's global rolled products, engineered products and transportation and construction segments, will be named later. It is expected to have about 43,000 workers and logged revenue of $14.5 billion in the 12 months ended June 30.

Alcoa has been investing in that part of the company, which it called a “value-add” business. In addition to the $1.5 billion acquisition of RTI, Alcoa bought two companies that make parts for jet engines, Firth Rixson and Tital.

Alcoa has been expanding plants in Tennessee and Iowa that make aluminum for the auto industry. Earlier this month, Alcoa broadened a partnership with Ford Motor Co. to use a stronger form of aluminum for auto body parts. It announced a $60 million investment to expand its three-dimensional manufacturing capabilities at the technical center in Upper Burrell.

That part of the company is contributing more to Alcoa's bottom line. The company said its value-add business contributed 51 percent of overall after-tax operating income last year, more than double its contribution to earnings in 2008.

“We have successfully shifted our product mix to higher value-add products, robust margin and investment opportunities,” Alcoa CEO Klaus Kleinfeld said on a conference call with analysts.

Meanwhile, Alcoa's upstream business — consisting of bauxite mining, alumina refining and aluminum smelting operations — has been hit by falling aluminum prices and weak demand.

Alcoa has responded by closing mining, refining and smelting facilities around the globe.

The upstream business will retain the Alcoa name, the company said. It will have about 17,000 employees. It generated $13.2 billion in revenue for the 12 months ended June 30.

John Tumazos, analyst and owner of Tumazos Very Independent Research, in Holmdel, N.J., said Alcoa's aluminum commodity business has been hurt by China's lower consumption and by cheaper Chinese supplies.

Those pressures have increased more than expected this year, Tumazos said.

“I think the catalyst (for the separation) is how tough this year has been in aluminum,” he said.

After the planned split, Kleinfeld will lead the as-yet-unnamed company focusing on engineering products. Each company will have its own board of directors and full management teams will be named in the months leading up to the split.

Alcoa's stock price closed up Monday, rising 52 cents, or 6 percent, to $9.59 a share.

Alcoa became the latest in a string of U.S. companies to split to be able to focus on a faster-growing part of a business and shed an established franchise that had begun to look like an anchor.

Germany's Bayer AG is in the process of spinning off its plastics business, which has its North American headquarters in Robinson, so that it can focus on medical and agricultural divisions. Hewlett-Packard, Dow Chemical and General Electric have announced plans to split in two or sell off large chunks of their businesses.

Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or anixon@tribweb.com. The Associated Press contributed.

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