By Bob Tita 

Aluminum-parts manufacturer Arconic Inc. said it plans to spin off one of its two main business units after rejecting a $10 billion offer for the entire company and abruptly replacing its chief executive.

Arconic on Friday didn't say whether it would aim to divest the aluminum-sheet rolling or aerospace-components unit. The company said smaller businesses that don't fit into either unit would be sold.

"We did not receive a proposal for a full-company transaction that we believe was in the best interests of our shareholders," Chief Executive John Plant said in the company's fourth-quarter earnings release. "The board sees more shareholder value creation through a restructuring of the company."

Arconic shares dropped 4.4% on Friday to $16.90.

The $10 billion offer from private-equity firm Apollo Global Management LLC was crafted with input from the company's largest shareholder, activist hedge fund Elliott Management Corp. Now the board wants to exert greater control over the breakup of the company, a source familiar with the board's thinking said.

The board on Wednesday installed Mr. Plant, 65 years old, who remains board chairman, as CEO in place of Chip Blankenship and elevated director Elmer Doty to chief operating officer. The moves give the board more direct control over the company's daily operations and influence over the breakup.

"To carry out a new direction that I've talked about, it's appropriate to make a change in leadership. It's that straightforward," Mr. Plant said on Friday in a call with analysts.

Breaking up the company could be a longer and more complicated process than selling the whole company in a single transaction, analysts have said. Spinning off a unit as a new public company with shares distributed to existing shareholders can take at least a year.

Spinoffs can also be expensive, generating hundreds of millions of dollars in fees for accountants, lawyers and bankers. Mr. Plant didn't estimate how much the breakup plan would cost. He said he put a one-year limit on his time as CEO because he is confident the split will be nearly completed a year from now.

Mr. Plant, an Arconic director since 2016, ran auto-parts maker TRW Automotive from 2003 to 2016. He is Arconic's fourth chief executive since Arconic was hived off from aluminum producer Alcoa Inc. in 2016. The company's shares are down about 28% from a year ago.

The company has delivered mostly disappointing results as it struggled to manage the high-margin aerospace-components business and an aluminum-rolling unit facing tough competition from lower-cost competitors.

The aerospace-components unit, the company's most profitable business, has had difficulty supplying parts for jet engines as engine manufacturers prepare to double output of more fuel-efficient Airbus SE and Boeing Co. jetliners over the next year.

Arconic is under pressure to increase production to avoid losing orders to rivals. Operating profit from the business slipped 8% in 2018 from a year earlier to $891 million. Revenue rose 6% last year to $6.3 billion.

The rolling business, which primarily supplies aluminum that is made into auto-body panels, reported operating profit of $386 million last year, a 9% decline from 2017. The operating margin from the business was 6.9%, half the rate of the aerospace-components business. Revenue last year rose 12% to $5.6 billion.

The sale of Arconic's building-products business faces the hurdle of potentially expensive liabilities related to an apartment tower fire in London in 2017. Exterior panels made of aluminum and combustible polyethylene were cited as a factor in the spread of the fire that killed 72 people.

For the fourth quarter, Arconic said it swung to a profit, helped by stronger sales. Net income was $218 million, or 44 cents a share, compared with a loss of $727 million, or $1.51 a share, a year earlier. Sales in the quarter ended Dec. 31 rose 6% to $3.47 billion.

--Kimberly Chin contributed to this article.

Write to Bob Tita at robert.tita@wsj.com

 

(END) Dow Jones Newswires

February 08, 2019 16:45 ET (21:45 GMT)

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