Alcoa
Paul Singer’s Elliott Management has taken a 6.5% stake in Alcoa according to the fund’s Schedule 13D, as filed with the SEC today.
Several news outlets are reporting that Elliott is seeking “constructive dialog” with Alcoa’s management following the acquisition of the stake. According to Bloomberg, Elliott informed Alcoa’s management that the fund was acquiring an interest in the business shortly after the group announced its intentions to separate its Upstream and Value-Add businesses.
According to CNBC, Elliott Management supports Alcoa’s decision to split in two but the fund is concerned about Alcoa’s plan to deliver margin improvement of 700 basis points. Further, Elliott is apparently pushing for the company to sell its power generation unit.
“Elliott advised us of their ownership of AA shares several weeks ago, shortly after we announced the separation of our Upstream and Value-Add businesses. Since then we have had constructive discussions with Elliott,” Alcoa spokeswoman Monica Orbe told ValueWalk.
Alcoa: Splitting up
Alcoa has attracted plenty of attention since the company announced its intention to split itself into two separate publicly traded companies back at the end of September. The two new separate business units — Upstream Company and Value-Add Company — will separate the group’s upstream and downstream operations.
“The globally competitive Upstream Company will comprise five strong business units that today make up Global Primary Products — Bauxite, Alumina, Aluminum, Casting, and Energy. The innovation and technology-driven Value-Add Company will include Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions.” — Alcoa separation announcement (click here to read in full).
And along with Elliott, Seth Klarman’s Baupost has also taken a position in Alcoa as the company prepares to split itself in two. The split should occur during the second half of 2016.
Unlocking value
Alongside the news that Elliot has built a stake in Alcoa, the stock is trading higher today after Citigroup issued a research note arguing that Alcoa’s breakup should unlock value for investors and the ban placed a $12 per share price target on the stock.
“Given the curtailment of high-cost capacity and continued tightening of capex (<$0.3 bln to AA), we believe the Upstream unit can remain free cash positive on an unlevered, standalone basis under most scenarios while providing substantial cyclical leverage in an upturn, as was the case in 2014.
Our $12/sh target assumes some commodity price recovery relative to low spot prices but even if we flow current prices through our model, we believe AA should be trading slightly above $9/sh based on relevant comps. Plus if the company generates their target of $0.8 bln of free cash in 4Q15, this would add~$0.60/sh of value. Our valuation assumes that the Upstream assets should trade at 6.5x 2016 EBITDA while ValueAddCo should trade closer to 9x EBITDA.”
The post Elliott Management Takes 6.5% In Alcoa, Supports Break-Up appeared first on ValueWalk.
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