Arconic Decides to Break Itself in Two -- WSJ
February 09 2019 - 3:02AM
Dow Jones News
Aluminum-parts maker opts for spinoff after rejecting $10
billion buyout
By Bob Tita
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 9, 2019).
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 09, 2019 02:47 ET (07:47 GMT)
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