On November 23, 2015, hedge fund Elliott Management disclosed its 6.4% stake in Alcoa (AA) in its regulatory filing with the US (SPY) Securities and Exchange Commission (or SEC). According to Elliott Management’s regulatory filings, it started buying its stake in Alcoa in the middle of September 2015.
Apparently, Elliott Management is not the only company finding value in the beleaguered commodity space. In August, activist investor Carl Icahn disclosed his 8.5% stake in Freeport-McMoRan (FCX). On the face of it, there is little in common between Alcoa and Freeport. Although Freeport is mainly involved in copper and energy production, Alcoa has been gradually moving away from being a pure-play commodity company.
More than half of Alcoa’s revenues now come from the value-added component space and aluminum sheet products. Alcoa’s acquisition of Firth Rixson, RTI Metals, and TITAL have enhanced its presence in the fast-growing aerospace component market. Precision Castparts (PCP) and Woodward Inc. (WWD) are the other leading suppliers to the aerospace sector.
Freeport-McMoRan and Alcoa have two things in common. Firstly, both stocks have tanked this year, as can be seen in the graph above. Secondly, both Freeport and Alcoa are in the middle of a major corporate restructuring. Freeport had already announced the IPO (initial public offering) of its energy business before Carl Icahn disclosed his stake. Alcoa also announced that the company would be split into two companies by the middle of 2016.
However, Elliott Management started buying its stake in Alcoa before it announced the split. Alcoa has been laying the groundwork for the split for quite some time now. You can read more about this aspect of Alcoa’s business in Will Alcoa Splitting into 2 Companies Create Shareholder Value?
In the next part, we’ll discuss why Elliott Management finds value in Alcoa.