About That Spinoff... Alcoa's Split Doesn't Go As Expected

| About: Alcoa, Inc. (AA)

Original Post

By Raul de Frutos

In October, Alcoa, Inc. (NYSE:AA) divided the company into two separate entities. The split created a commodity-focused company which retains Alcoa's name and its upstream business. The second entity, called Arconic, now operates as the company's downstream business.

When the split was announced last year, Arconic was supposed to drive value for shareholders once listed as a separate entity, while Alcoa's stock price was expected to remain depressed, as at the time the split was announced, aluminum prices were trading near their 2009 lows.

Alcoa shares have risen near 50% since the company split. Source: MetalMiner analysis of @stockcharts.com data

Guess what happened?

Alcoa shares have risen nearly 50% in less than a month... or since the company formally split. The undergoing bull market across the industrial metals complex put aluminum prices trading at a 15-month high this month.

Not only have Alcoa shares exploded, but Arconic shares have fallen significantly since the split, due to concerns over the health of the aerospace industry, a major customer market for Arconic.

Arconic shares have fallen since the split. Source: MetalMiner analysis of @stockcharts.com data

To conclude: Market dynamics have changed since Alcoa announced the split. If alumina and aluminum prices keep on rising, which is likely, Alcoa's upstream business will continue to be the investors' pick in 2017.