Arconic (ARNC) announced that it sold 60% of its stake in Alcoa (AA) and raised ~$890 million. Looking at the money raised, we could arrive at an average transaction price of $38.11 per share, which is very close to Alcoa’s recent highs.
On November 1, 2016, Alcoa split into two new entities: Alcoa and Arconic. The split completed a process that was initiated by the company in September 2015. The actual seeds of the split were planted almost a decade ago, when Alcoa started to expand its value-added portfolio (CSTM) (BRK-B).
The primary goal behind Alcoa’s split was to separate the company’s fast-growing value-added business from its legacy commodity business (CENX). The chart above shows the timeline of Alcoa’s split. You can read Alcoa’s Split Timeline: Past, Present, and Future to find out more about the timeline.
After the split, Arconic held an ~20% stake in Alcoa, which may have taken place to resolve any consolidated debt. When the split took place, Alcoa was not in a position to hold much debt on its balance sheet due to sagging commodity prices (XLB).
Because Arconic retained all of Alcoa’s debt, the company’s leverage ratio surged after the split. Arconic’s stake in Alcoa was meant to be a deleveraging opportunity for the company.
In this series, we’ll explore what Arconic’s stake sale means for investors. We’ll also see whether Arconic was early in exiting its stake in Alcoa.