The New York Based Company is the world’s third largest producer of aluminum. From its operational base in Pittsburgh, Pennsylvania in the United States, Alcoa Inc (AA) conducts operations in 30 countries. It is one of the world’s largest lightweight metal manufacturers of products made of aluminum, titanium and nickel. Alcoa’s products are used worldwide in aircraft, automobiles, commercial transportation, packaging, building and construction, oil and gas, defense, and industrial applications.
Shares of Alcoa are slumping 1.26% to $9.39 in mid-afternoon trading on Tuesday, this trend had been expected at Wall Street since early April. Alcoa is predicted to report a year-over-year decline in revenue and earnings for the 2016 first quarter, as its joint-venture partner Alumina Limited (AWCMY) threatens to interfere with its plan to split into two separate companies.
These moves could be seen as a response to the current market for aluminum that has seen prices drop to under $1,700 a ton, down more than 10% since the start of the year due to an over-supply of industrial metals from China.
Alumina says it will block Alcoa’s split of the manufacturing business from its legacy smelting and refining segment unless it revises a joint-venture agreement between the two companies, Alcoa executives said in a lawsuit.
“In the last few years, we have successfully transformed Alcoa to create two strong value engines that are now ready to pursue their own distinctive strategic directions,” said Klaus Kleinfeld, Chairman and Chief Executive Officer in the statement.
The move is expected to be completed by the second half of this year, dividing two of the different major revenue streams of the company. Its commodities-led company will adopt the Alcoa name, and bring together its five major product lines—bauxite, alumina, aluminum, casting, and energy—under one corporate roof. These units have traditionally formed the core of Alcoa’s 126-year existence. This company would have had revenues of $13.2 billion through June 30.
The other entity, dubbed “the Value-Add Company,” will consist of Alcoa’s newer—and possibly more promising—supply to an aerospace industry that has turned to lightweight titanium for their planes. This company will also be responsible for manufacturing aluminum alloys for commercial trucks, underpinned by its position as the supplier of the material to Ford’s best-selling line of F-150 light-weight trucks. This company would have had revenues of $14.5 billion through June 30.
Alumina will reportedly only agree to the planned separation if Alcoa grants “wholly unwarranted and highly valuable concessions” related to their joint operations, according to court filings.
Alumina has “no consent or first-refusal rights in connection with Alcoa’s separation,” Alcoa contended in the lawsuit, Bloomberg adds.
Alcoa’s strengths are its solid financial position based on a variety of debt and liquidity measures on the other hand after careful analysis, we can conclude that, weaknesses such as including poor profit margins, weak operating cash flow and a generally disappointing performance in the stock itself, exist within the company.