Activist Elliott Takes Stake in Alcoa--3rd Update
November 23 2015 - 3:14PM
Dow Jones News
By John W. Miller
Hedge fund Elliott Management Corp. has accumulated a 6.4% stake
in Alcoa Inc. following the company's decision in September to
split in two, spinning off its more diverse parts-making business
from its raw aluminum operations.
The disclosure, announced in a securities filing, marked the
second activist move this year on a major U.S. metals and mining
company, after Carl Icahn's investment in Freeport-McMoRan Inc.
Investors appeared to view the move as an endorsement of Alcoa's
plan, sending its shares up 5.6% at $12.24 in New York trading.
Representatives of Elliott, a New York hedge fund founded by
Paul Singer, have been meeting with senior Alcoa executives,
including Chief Executive Klaus Kleinfeld. Elliott's analysis that
Alcoa is the most undervalued of U.S. metals and mining firms
prompted the investment, according to people with familiar with the
matter.
The sector has been battered by the downturn in metals prices,
and Elliott studied possible investments in other companies. It
concluded that Alcoa was the best target because of its thriving
aerospace and automotive business, which, the hedge fund believes,
has been overshadowed by the commodity bust, these people said.
Alcoa was advised of the share purchase "several weeks ago," the
New York-based company said in a statement.
Prices for raw aluminum have fallen by over 40% since 2011, and
Alcoa's share price has fallen by a similar amount.
That decline, Alcoa and Elliott believe, masks the prosperity of
the company's aerospace and auto businesses and was behind the
aluminum company's announcement in late September that it would
spin off its more profitable and diverse parts-making units. The
deal is expected to close in the second half of next year, with
Alcoa shareholders owning all outstanding shares of both
companies.
The raw metals business, hurt by falling aluminum prices, will
include the company's bauxite-mining, alumina-refining and
aluminum-production businesses and will still be called Alcoa to
reflect the company's heritage as the world's first industrial
producer of aluminum.
The other entity, which for now Alcoa is calling its "value-add
company, " will comprise its global rolled products, engineered
products and solutions, and transportation-and-construction
businesses. The Alcoa entities "now each have the strength and
scale to each stand on their own," Mr. Kieinfeld said when the
split was detailed.
Mr. Kleinfeld, a former chief executive at Siemens AG, has shut
down Alcoa's unprofitable raw aluminum smelters while expanding its
manufactured parts business, including through deals. Last year, it
bought U.K. jet-engine parts maker Firth Rixson Ltd., and this year
Pittsburgh-based RTI International Metals Inc., one of the world's
biggest makers of fabricated titanium products for the aerospace
industry.
More changes could be in store as Elliott gets more involved.
Although the hedge fund's representatives have shied away from
issuing orders, they are eager to have a "conversation" with Alcoa
about improving the company's profit margins, according to people
familiar with the matter.
Alcoa's spinoff will compete with Portland-based Precision
Castparts Corp., which Warren Buffett's Berkshire Hathaway Inc.
bought in August for $37.2 billion, including debt, Buffett's
biggest acquisition yet.
In the third quarter, Alcoa posted a profit of $44 million, or 2
cents a share, down from $149 million, or 12 cents a share, a year
earlier. Revenue fell 11% to $5.57 billion.
Write to John W. Miller at john.miller@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 23, 2015 14:59 ET (19:59 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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