Alcoa, the aluminum supplier, has announced today that it will be splitting into two separate companies.
According to USA Today, Alcoa announced Monday that it will be splitting into two independent, publicly traded businesses, citing that each portfolio is believed to be "strong and distinct enough to go down its own strategic path."
Alcoa has been struggling as of late thanks to the aluminum glut. The aluminum glut is said to be a result from excess aluminum supply, and with business booming in places such as China, the demand for the product has lowered, making it harder for companies such as Alcoa to remain profitable. In fact, according to the Wall Street Journal, earlier this year, Alcoa's stock had suffered greatly, plunging a total of 30 percent. More recent reports state that the company has seen a total decline in stocks of more than 42 percent.
Because of their consistent decline, Alcoa has decided to split itself into two separate companies in order to narrow their product focus in hopes to generate more business. According to the Wall Street Journal, the company is planning to split into two separate entities. The first will remain Alcoa, and will include its bauxite-mining, alumina-refining, and aluminum-production businesses. This second business, which has remained unnamed as of this report, will include Alcoa's global rolled products, engineered products, and solutions and transportation-and-construction businesses.
Alcoa isn't the only major name business that has announced a split in recent times. According to Fortune, Hewlett-Packard also announced plans to split up its company earlier this summer. Like Alcoa, Hewlett-Packard announced that it will be splitting its company into two separate companies to form a more narrow focus.
Hewlett-Packard was seeing a decline in business thanks to the fact that the market for personal computers has continued to decrease, and in order to compete in the ever-changing technological universe, the company decided it was best to split up operations. HP decided that it was better to streamline business and create two smaller, simpler companies. Hewlett-Packard Enterprise was said to concentrate on selling hardware, like servers to businesses, while HP Inc. will focus on selling items such as printers and personal computers.
While Hewlett-Packard stated that they planned to have the separation completed by the end of the fiscal year 2015, Alcoa has stated that their action plan has the separation being completed more towards the second half of 2016.
The general thought behind these businesses splitting up is the belief that companies with a narrower focus generally perform better, and Alcoa seems to believe in this theory, as well.
"We are interested in creating value for our customers, for our shareholders, for our employees, and at this point this is the option we see that creates the biggest value," Alcoa Chief Executive Klaus Kleinfeld told Reuters.
The company believes that it will see a growth resulting from doing business with both the aerospace industry as well as the automotive industry. Alcoa has reportedly benefited from Ford Motor Co. and other automakers who have been buying aluminum to build their cars and make them lighter in order to comply with new fuel-efficiency standards, according to the Wall Street Journal.
Reports state that Kleinfield will lead Alcoa, after the separation, as chairman and CEO, though no one has yet to be named CEO of the unnamed, second business and, according to Reuters, Alcoa has provided no current timeline for choosing someone to head the new company.
Since the announcement of Alcoa's business split, the company has seen a surge in stock shares. Shares reportedly have gone up nearly six percent today, reaching $9.60 in premarket trading.
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