CHICAGO, (Reuters) – Alcoa Inc, which has been hurt by falling prices for aluminum, its core product, said today it would split into two publicly traded entities as its traditional operations and higher-value and automotive businesses were diverging and no longer compatible.
In premarket trading, shares of the company were up 6.8 percent at $9.70.
A ballooning aluminum surplus has hurt Alcoa’s traditional smelting business, causing prices to sink and deepening the industry’s worst crisis in years.
Still, the company has bet on growth from higher-margin titanium and high-strength aluminum sales to the aerospace industry, citing a growing order book for airplane production and renewed global spending on automobiles.
Josh Sullivan, an analyst with Sterne Agee CRT, said Alcoa had already been in the process of a transition, including its recent acquisition of RTI International Metals.
“The commodity business was a significant drag, not only on valuation but on the resources of the company,” Sullivan said.
One question arising from the split would be how Alcoa’s debt and pension liabilities will be divided between the two companies, Sullivan said.
Efforts by the world’s third-largest producer of aluminum to address these diverging trends resulted in conflicting messages for investors, according to sources close to the company.
The split is expected to be completed in the second half of 2016 and the legacy aluminum firm will retain the name Alcoa, the company said.
Chief Executive Officer Klaus Kleinfeld will be chief executive of the new, unnamed entity and will remain chairman of Alcoa throughout the transition period.
“We believe both entities have gotten into a shape that they are competitive and sizeable and they can stand on their own,” Kleinfeld told Reuters.
The company did not provide a timeline for choosing a CEO for Alcoa after the split. The division of the company does not need to be approved by shareholders, sources familiar with the matter said.
