SYDNEY – In what could be a cautionary tale for Alcoa Inc, global miner BHP Billiton’s decision to spin off non-core businesses into a separate company is yet to pay off for shareholders.
Alcoa announced on Monday it will break itself in two, separating a faster growing plane and car parts business from traditional alumina and aluminum production as shareholders seek higher returns amid a commodity slump.
BHP used a similar rationale for ring-fencing select operations in Australia, southern Africa and South America into what became South 32 last May to concentrate on its most profitable commodities.
South32 shares fell to a record low on Tuesday of A$1.38, more than a third below its listing price. BHP stock, at A$21.61 at Australia’s Tuesday close, is the lowest in seven years.
“The argument is that these things create simpler structures where management can better focus on delivering value in the separate businesses,” said Andrew Driscoll, global head resources analysis for CLSA. “That’s true, but commodities prices are out of their control.”
Whoever ends up running the new Alcoa companies – initially Alcoa’s head Klaus Kleinfeld will serve as chairman and chief executive of the downstream component and chairman of upstream – may have fewer areas to focus on than their counterparts at South 32, whose businesses include aluminum, nickel, silver, manganese and coal.
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