CHICAGO – Alcoa Inc (AA.N) said Monday it will break itself in two, separating its faster growing business manufacturing parts for planes and automobiles from its traditional aluminum smelting operations as shareholders seek higher returns amid a commodity slump.
Pressured by a 42 percent drop in its share price this year and a surge in Chinese aluminum exports, Alcoa is splitting into two publicly traded companies focusing on smelting and higher-tech products. It is joining a wave of major corporations which this year have divested business to add shareholder value.
Alcoa shares jumped 2.4 percent to $9.29 as analysts applauded its intensified focus on products for expanding businesses like aerospace and auto.
The stock surge made the 127-year-old company the biggest percentage gainer on the benchmark S&P 500 index.
The global glut of aluminum, which has depressed prices, has battered Alcoa stock, driving the company’s market value this year down to about $12 billion.
“Alcoa has faced this problem for decades: No matter what they have done to enhance their product line, their stock has traded based on metal prices,” said analyst Charles Bradford of Bradford Research.
The company’s traditional business, which also includes better-performing bauxite and alumina, will retain the Alcoa name. The newer company is still unnamed.
The split is expected to be completed in the second half of next year.
“We are interested in creating value for our customers, for our shareholders, for our employees, and at this point this is the option we see that creates the biggest value,” Chief Executive Klaus Kleinfeld told Reuters.
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