Alcoa’s split timeline
On September 28, 2015, Alcoa (AA) announced that it would split into two independent companies. Markets reacted positively to the news, and Alcoa saw an upward price action of 5.7% after the announcement.
On November 23, 2015, hedge fund Elliott Management disclosed its 6.4% stake in Alcoa. According to Elliott Management’s regulatory filings, it found that Alcoa was “dramatically undervalued by the public market.” Elliott also added that Alcoa’s split would “create value substantially above the current share price.” Alcoa announced the post-split management structure one day after Elliott Management disclosed its stake in the company. Later, Alcoa expanded its board to accommodate two Elliott nominees.
Elliott Management’s faith in Alcoa’s post-split value was welcomed by markets (DIA), with Alcoa jumping by 4.3%. But the appointment of Elliot Management nominees on Alcoa’s board was not received as well—the stock fell after this news. Interestingly, Freeport-McMoRan (FCX) rose last year, after Carl Icahn gained two seats on the company’s board.
Alcoa’s price action after the appointment of new board nominees reflects the market’s perception of both companies’ managements. It’s generally believed that FCX’s management has not created shareholder value over the past couple of years. Instead, shareholder wealth has been diminished by FCX’s ill-timed energy foray.
On the other hand, under Klaus Kleinfeld, Alcoa has steered the company from being a pure-play commodity producer toward being a diversified engineering company. The split, which will be completed later this year, would separate the commodity side of the business from the value-add component business.
You might consider the SPDR S&P Global Natural Resources ETF (GNR) for diversified exposure to international natural resources companies like Alcoa. Together, BHP Billiton (BHP) and Rio Tinto (RIO) make up 6.7% of GNR’s portfolio.
In the next part of this series, we’ll explore the strategic rationale for Alcoa’s split.