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Alcoa’s Split: Key Takeaways from Form-10

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Alcoa’s split

On June 29, Alcoa (AA) filed Form-10 related to its split. In this part of the series, we’ll look at key takeaways from the filing. Then, we’ll explore how the takeaways will likely impact investors.

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New structure

After the split, Alcoa would be renamed “Arconic.” The upstream business would be split into a new company that would be called “Alcoa.” After the split, Arconic would continue to have an ~20% stake in Alcoa. Another interesting development is the inclusion of the Rolled Products segment into Alcoa. When the split was originally announced, the segment was included in Arconic.

It’s important to note that the Rolled Products  segment forms part of Alcoa’s GRP (Global Rolled Products) segment. The GRP segment caters to the fast-growing auto sheet market while also producing commodity grade can sheet products. The automotive and aerospace sectors (ITA) have been Alcoa’s focus for many quarters. The company competes with peers such as Precision Castparts (BRK-B), Constellium (CSTM), and Woodward (WWD) to capture the demand for aerospace components.

Debt

Alcoa’s current debt would be owned by Arconic. After the split, Alcoa would raise $1 billion that would be paid to Arconic. Arconic plans to use the funds to repay some of the debt that it would assume after the split.

Another lingering question about the split is related to pension obligations. Alcoa provided the breakup of the post-split pension and OPEB (other post-employment benefits) liabilities. Alcoa would have ~$2.6 billion in pension liabilities, while Arconic would take the remaining $3 billion in liabilities.

In the coming parts of these series, we’ll see how these aspects would impact Alcoa and Arconic after they’re listed separately.

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