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Alcoa splits itself in two

Nancy Marshall-Genzer Sep 28, 2015
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Alcoa said it’s going to split off its traditional aluminum and bauxite mining operations into one business. 

Its finished products business will be a second, separate company, making parts of jet engines and aluminum truck wheels.

The first reason for the Alcoa divorce is the stock could be more attractive to investors. That’s because right now, investors who don’t like commodities don’t buy Alcoa stock. 

“If you keep the businesses lumped together, the company appeals to only one group of investors,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. “But if you separate the companies, the company appeals to three groups of investors.”

That is commodities investors, people who only want to invest in metal parts and those who want both.  

Gordon also said the commodities business can fluctuate, depending on how much aluminum developing economies like China’s need. 

Gordon said you don’t have those ups and downs if you’re just making metal parts.

“Those sales are a lot steadier than gambling on what’s going to happen in China or some of the other emerging markets that are huge consumers of the commodity aluminum,” he said.

Alcoa estimates that revenue from sales of automotive parts will increase 2.4 times to $1.8 billion by 2018.

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