Arconic Inc. plans to break into two separate companies and will slash its dividend by two-thirds, marking a dramatic overhaul of the aerospace manufacturer in the wake of its failed sale to a private equity firm. The shares rose.
The company will separate into businesses focused on parts making and the production of aluminum sheet, Arconic said Friday in a statement as it reported fourth-quarter earnings. One of the units will be spun off, and Arconic will consider a sale of any operations that don’t fit into either of the businesses.
The sweeping plan underscores the challenges facing Arconic, which has tumbled over the past year amid operational shortfalls and volatile aluminum prices. The company aims to quell the volatility that has defined it since a 2016 split with Alcoa -- a stretch that included a proxy battle with shareholder Elliott Management Corp., numerous CEO changes and a connection to a deadly apartment fire in London.
Arconic climbed 2.4% to $18.10 a share before regular trading in New York. The shares fell 30% over the 12 months through Thursday, compared with a 4.1% decline in a Standard & Poor’s index of industrial companies.
Under the breakup plan, Arconic will separate its Engineered Products & Forgings business and its Global Rolled Products operation. The company also cut the dividend to 2 cents a share from 6 cents as part of a cost-reduction effort.
Arconic announced the changes just weeks after backing out of sale talks with Apollo Global Management. The private equity investor had been widely expected to acquire the manufacturer after months of reports of interest from buyout firms.
“We did not receive a proposal for a full-company transaction that we believe was in the best interests of our shareholders,” Chairman and Chief Executive Officer John Plant said in the statement. “The board sees more shareholder value creation through a restructuring of the company.”
Plant assumed the CEO role this week following the surprise ouster of Chip Blankenship, who led the company for just over a year. Plant is the company’s fourth CEO since early 2017.
The breakup plan overshadowed a solid fourth quarter for the company. Adjusted earnings rose to 33 cents a share, topping the 30-cent average of analysts’ estimates compiled by Bloomberg. Sales climbed to $3.5 billion, while analysts anticipated $3.4 billion.
Arconic forecast profit of $1.55 to $1.65 a share for this year, compared with analysts’ average estimate of $1.58. Sales were projected at $14.3 billion to $14.6 billion.
Elliott Battle
Arconic isn’t new to breaking up. The company split from aluminum producer Alcoa more than two years ago as the culmination of a strategy pursued by then-CEO Klaus Kleinfeld.
Alcoa has gained about 19% since the separation, while Arconic has fallen about 6.5% -- not exactly what investors had in mind for the maker of higher-margin engineered aluminum parts.
In the months after the split, activist investor Paul Singer’s Elliott Management launched a campaign to replace Kleinfeld for “years of poor performance,” saying that “a culture of grandiose rhetoric devoid of any real substance or follow-through has been tolerated.”
Kleinfeld unceremoniously left his post at Arconic after he sent a rogue response to challenge Singer following weeks of hostilities.
By Richard Clough
