Alcoa to split into 2 companies

Alcoa will split into two independent companies one focused on aluminum production and the other on engineered products for the automotive and aerospace industries, the company announced today.

The Alcoa name will remain with the metals company that does mining, refining and aluminum production with 17,000 employees at 64 plants worldwide, including three in Quebec.

The other company, yet to be named, will have 157 locations and 43,000 employees that will provide high-performance products. About 40 per cent of its revenues have come from the aerospace market.

Alcoa expects the split to be completed by the second half of 2016. Industry observers said they don't expect much impact on the Canadian operations, which benefit from a low currency and low electricity prices.

Justifying the split

Klaus Kleinfeld, who will be chief executive of the engineer-products company and chairman of both companies, said the split recognizes that two strong "value engines" have been created over the past few years.

"We are launching two strong companies. Both are driving value. Both will be distinct, global leaders," Kleinfeld told analysts Monday.

The company has been shifting its focus to its more profitable "downstream" automotive and aerospace products, which also involve titanium, and shutting unprofitable "upstream" aluminum smelters amid a surplus of supply and low prices.

Analyst Charles Bradford said the low Canadian dollar and rock-bottom hydro electricity prices ensure Alcoa's Canadian operations in Quebec are likely to escape much impact from the split.

"In your neck of the woods there could be more focus on the business as the management only has the upstream businesses to worry about," Bradford of Bradford Research said from New York City.

Alcoa in Canada

Alcoa employs more than 3,000 people in Canada, mainly in Quebec, Ontario, and Alberta. It operates Quebec smelters in Baie-Comeau, Deschambault and Becancour and has operations in the aerospace, automotive and construction sectors.

Bradford said Alcoa's move which has been mused about for years is an attempt by the company to boost the value of its shares which have been tied to the aluminum price.

Canadian aluminum association president Jean Simard said Alcoa's change is the latest of a global move by the mining industry to separate its activities.

He said the low Canadian dollar ensures that the Quebec operations will continue.

"If it wasn't for the currency exchange we would be in a very bad position," he said.

Kleinfeld said the company has achieved productivity gains and US$1.3 billion of extra profits from 2010 to 2014 from closing and selling assets in the last few years. That's left about half of its aluminum capacity, including sites in Canada, Iceland and Norway, among the lowest cost sites.

Alcoa continues to review its remaining capacity but has options in addition to just closing operations. He pointed to the renegotiation of its hydro power rates in Quebec about 18 months ago.