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Assessing the Timing of Arconic’s Sale of Its Stake in Alcoa

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Stake sale

After the split, Arconic (ARNC) held an ~20% stake in Alcoa (AA), which Arconic plans to monetize in 18 months. However, ARNC retained the option to hold Alcoa’s stake for up to five years. During the company’s investor event held in 2016, Ken Giacobbe, Arconic’s chief financial officer, noted that the company had “voluntarily agreed to a 60-day lock-up period post separation.”

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Higher commodity prices

The uptrend in commodity prices seems to have changed the equation for Arconic. Alcoa and other primary aluminum producers like Norsk Hydro (NHYDY) and Century Aluminum (CENX) have rallied smartly as aluminum prices have surged. Furthermore, market sentiment in the metals and mining sector has improved considerably since Donald Trump’s 2016 election as the US (SPY) (SPX) president.

Although Arconic has seen some recent upward price action, its stock has lagged Alcoa’s returns. To make things worse, Elliott Management, Arconic’s biggest shareholder, has waged a campaign to oust Klaus Kleinfeld, Arconic’s current chief executive officer.

Did Arconic exit early?

Arconic still holds an 8% stake in Alcoa that could help the company participate in Alcoa’s future upside. With commodity prices still showing strength, we can ask whether Arconic exited its stake in Alcoa a little too early. We’ll answer this question by examining Alcoa’s outlook in the next article.

Correction: This article originally described Klaus Kleinfeld as Alcoa’s current CEO rather than Arconic’s current CEO. We regret this error.

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