Changes to AWAC JV to enhance value for Alcoa’s
and Alumina’s shareholders
Parties agree to terminate litigation related
to Alcoa’s separation
Alcoa Inc. (NYSE:AA) (“Alcoa”) and Alumina Limited (ASX:AWC)
(“Alumina”) today announced that they have agreed to make certain
changes to the Alcoa World Alumina and Chemicals (“AWAC”) joint
venture that will enhance value for Alcoa, Alumina, and their
respective shareholders. In conjunction with these amendments, the
parties have agreed to terminate their litigation in the Delaware
Court of Chancery relating to Alcoa’s pending separation into two
independent, publicly traded companies. Alcoa Inc. remains on track
to complete its separation in the second half of 2016.
In general, the changes to the joint venture agreements are
intended to align more closely the partners’ interests in AWAC,
while establishing greater strategic flexibility and autonomy for
both partners.
Effective upon the completion of Alcoa’s separation, certain
changes will be made to the governance and financial policies of
the joint venture, intended to enhance the cooperation between the
shareholders. These changes will promote faster decision-making,
joint input on significant decisions, improved information sharing
and a more streamlined process for resolving disputes. The changes
will also simplify AWAC’s dividend and cash management policies and
require that AWAC raise a limited amount of debt to fund future
mutually agreed growth projects.
In the event of a change of control of either partner in the
future, opportunities for the AWAC partners to engage in expansion
and development projects would increase, with each partner having
the right to proceed unilaterally with an expansion or development
project inside the joint venture if the other partner chooses not
to participate. A partner that avails itself of such an opportunity
would pay for the costs related to the project, including for AWAC
resources and shared facilities used, and be entitled to that
project’s resulting off-take. In addition, upon a change of
control, the exclusivity and non-compete restrictions under the
current joint venture agreements would terminate, and be replaced
by rights of first offer on expansions and other development
projects that either party may choose to undertake outside of the
joint venture.
If a change of control of Alumina were to occur in the future,
off-take rights for alumina and bauxite would be triggered. For
example, if an industrial acquirer became the new partner in AWAC
it would be entitled to buy alumina and bauxite at market prices
for that partner’s internal consumption. In addition, that future
partner would also be entitled to buy 1 million tons of alumina at
market prices for resale into the market. This could have the
effect of establishing a strategic joint venture partner and
long-term customer for AWAC.
“We believe these changes create a true win-win situation and
will enhance value for our AWAC joint venture, the future Alcoa
Corporation, and its shareholders,” said Roy Harvey, President of
Alcoa’s Global Primary Products and future CEO of Alcoa
Corporation. “We are strengthening our partnership agreement and
more closely aligning the partners’ interests. We are also
establishing a broader set of value-creating options for AWAC by
providing its owners with greater strategic flexibility. Among
other benefits, this opens the door for an industrial partner to
enter the joint venture, and like Alcoa, to become a long term
customer for bauxite and alumina. Alcoa looks forward to completing
our separation, launching two strong companies later this year, and
to working closely with Alumina to realize the full potential of
the AWAC partnership.”
Alumina’s Chief Executive Officer, Peter Wasow, said, “We have
refreshed the joint venture agreements to reflect the new realities
of our industry and Alcoa and Alumina’s individual circumstances.
These agreements strengthen the AWAC joint venture for Alcoa and
Alumina, giving the companies greater control over their
investments and future strategic options. We have enjoyed a
successful relationship with Alcoa for over 50 years and look
forward to working together in this next phase.”
About AWAC
AWAC consists of a number of affiliated operating entities that
own, operate or have an interest in bauxite mines, alumina
refineries and aluminum smelters. Following the completion of Alcoa
Inc’s separation which is scheduled to occur in the second half of
2016, Alcoa’s 60 percent interest in AWAC will be held by Alcoa
Corporation, and the remaining 40 percent will continue to be held
by Alumina Limited.
About Alcoa
A global leader in lightweight metals technology, engineering
and manufacturing, Alcoa innovates multi-material solutions that
advance our world. Our technologies enhance transportation, from
automotive and commercial transport to air and space travel, and
improve industrial and consumer electronics products. We enable
smart buildings, sustainable food and beverage packaging, high
performance defense vehicles across air, land and sea, deeper oil
and gas drilling and more efficient power generation. We pioneered
the aluminum industry over 125 years ago, and today, our
approximately 58,000 people in 30 countries deliver value-add
products made of titanium, nickel and aluminum, and produce
best-in-class bauxite, alumina and primary aluminum products. For
more information, visit www.alcoa.com, follow @Alcoa on Twitter at
www.twitter.com/Alcoa and follow us on Facebook at
www.facebook.com/Alcoa.
About Alumina
Alumina is a leading Australian resource company listed on the
Australian Stock Exchange and the US Over-the-Counter market with a
specific focus on bauxite and alumina, the feedstock for aluminium
smelting. It owns 40% of the world’s largest bauxite and alumina
business, AWAC the recognised industry leader. Its partner in AWAC
is Alcoa, who owns the remaining 60% and manages the day-to-day
operations. The AWAC joint venture was formed in 1994 and the
partnership with Alcoa dates back to 1961. For more information,
visit www.aluminalimited.com
Dissemination of Company Information
Alcoa intends to make future announcements regarding Company
developments and financial performance through its website at
www.alcoa.com.
Forward-Looking Statements
This communication contains statements that relate to future
events and expectations and as such constitute forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements include those
containing such words as “anticipates,” “believes,” “could,”
“estimates,” “expects,” “forecasts,” “intends,” “may,” “outlook,”
“plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,”
“would,” or other words of similar meaning. All statements that
reflect Alcoa’s expectations, assumptions or projections about the
future, other than statements of historical fact, are
forward-looking statements, including, without limitation,
statements regarding the separation transaction. Forward-looking
statements are not guarantees of future performance and are subject
to risks, uncertainties, and changes in circumstances that are
difficult to predict. Although Alcoa believes that the expectations
reflected in any forward-looking statements are based on reasonable
assumptions, it can give no assurance that these expectations will
be attained and it is possible that actual results may differ
materially from those indicated by these forward-looking statements
due to a variety of risks and uncertainties. Such risks and
uncertainties include, but are not limited to: (a) uncertainties as
to the timing of the separation and whether it will be completed;
(b) the possibility that various closing conditions for the
separation may not be satisfied; (c) the outcome of contingencies,
including legal proceedings; and (d) the other risk factors
discussed in Alcoa’s Form 10-K for the year ended December 31,
2015, and other reports filed with the SEC. Alcoa disclaims any
obligation to update publicly any forward-looking statements,
whether in response to new information, future events or otherwise,
except as required by applicable law.
Summary of Agreements
Effective as on completion of Alcoa’s separation transaction,
the key terms of the Agreements will be amended as follows:
- Future alumina off-take rights.
If at any time in the future there is a change of control of
Alumina then, from a date nominated by Alumina, Alumina or its
acquirer will be entitled to buy, subject to its 40% ownership
cap:
- its net short position (calculated as
total consumption less total owned production per annum) of alumina
at market price for its internal consumption; plus
- up to 1Mtpa alumina off-take, (equal to
approximately 7.5% of AWAC’s current total annual production) at
market prices, which it may market and sell as it sees fit;
- in all cases subject to AWAC third
party customer contracts being satisfied;
- Future bauxite off-take rights.
If there is a change of control of Alumina at any time in the
future then, from a date nominated by Alumina, Alumina or its
acquirer will be entitled to buy, at market prices, up to its net
short position of bauxite for internal consumption, subject to its
40% ownership cap;
- Termination of exclusivity
provisions and increased opportunity for development projects and
expansions. Immediately on and from a change of control of
Alumina or Alcoa Corporation at any time in the future, the
provisions of the AWAC joint venture agreements that require an
acquirer of either company to sell into AWAC or divest any of its
bauxite or alumina assets, will terminate. In addition, following a
change of control of Alumina or Alcoa Corporation, AWAC will no
longer be the exclusive vehicle for the bauxite and alumina
operations of Alumina and Alcoa Corporation– if either Alumina or
Alcoa Corporation wishes to expand an existing AWAC operation,
develop a new project on AWAC tenements or pursue a project outside
of AWAC, it is entitled to do so on a sole basis after providing
180 days for the other party to explore joint participation in the
proposed project. A partner that avails itself of such an
opportunity would pay for all costs related to the project,
including for AWAC resources and shared facilities used, and would
be entitled to all of the project’s resulting off-take;
- Improved alignment regarding AWAC
joint venture governance. Effective on completion of Alcoa’s
separation, the matters that require a super-majority vote (with an
80% voting threshold) by members of the Strategic Council will be
expanded to cover acquisitions, divestitures, expansions and
curtailments exceeding 2Mtpa bauxite or 0.5Mtpa alumina or which
have a sale price, acquisition price, or project total capital cost
of US$50m or greater; implementation of related party transactions
in excess of US$50m; implementation of financial derivatives,
hedges and other commodity price or interest rate protection
mechanisms; and a decision to file for insolvency in respect of any
AWAC company;
- Enhanced debt funding and
distribution policies. The AWAC joint venture will pay a
minimum quarterly distribution of 50% of the prior quarter’s net
profit of each company comprising the AWAC joint venture, instead
of the current payment of an annual dividend equal to 30% of ATOI.
Furthermore, any surplus cash (as defined in the Agreements) within
certain of the AWAC companies will be distributed on a quarterly
basis. The AWAC joint venture will also raise a limited amount of
debt to fund growth projects within 12 months of it becoming
permissible under Alcoa Corporation’s revolving credit line,
provided that the amount of debt does not trigger a credit rating
downgrade for Alcoa Corporation.
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version on businesswire.com: http://www.businesswire.com/news/home/20160901006534/en/
Alumina Limited Contacts:Investor: Chris Thiris, Chief
Financial Officer: +61-3-8699-2607orMedia (Australia): Nerida
Mossop: 0437-361-433; Hinton: +61-3-9600-1979orMedia (U.S.): Robert
Rendine, Sard Verbinnen & Co: 212-687-8080orAlcoa
Contacts:Investor: Matt Garth: +1-212-836-2674;
Matt.Garth@alcoa.comorMedia (U.S.): Monica Orbe: +1-212-836-2632;
Monica.Orbe@alcoa.comorMedia (Australia): Lisa Keenan, Nightingale:
+61-409-150-771
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