About that Spinoff… Alcoa’s Split Doesn’t Go as Expected

by Raul de Frutos on NOVEMBER 21, 2016

In October, Alcoa, Inc. divided the company into two separate entities. The split created a commodity-focused company which retains Alcoa’s name and its upstream business. The second entity, called Arconic, now operates as the company’s downstream business.

When the split was announced last year, Arconic was supposed to drive value for shareholders once listed as a separate entity while Alcoa’s stock price was expected to remain depressed since, at the time the split was announced, aluminum prices were trading near their 2009 lows.

Guess what happened?

Alcoa shares have risen nearly 50% in less than a month… or since the company formally split. The undergoing bull market across the industrial metals complex put aluminum prices trading at a 15-month high this month.

Not only have Alcoa shares exploded, but Arconic shares have fallen significantly since the split due to concerns over the health of the aerospace industry, a major customer market for Arconic.

To conclude: Market dynamics have changed since Alcoa announced the split. If alumina and aluminum prices keep on rising, which is likely, Alcoa’s upstream business will continue to be the investor’s pick in 2017.