Aluminum producer Alcoa Inc. expects to take charges of $845 million as it closes in on the sale of two businesses — packaging and consumer products, and automotive castings — enabling it to focus on new growth opportunities, the company said Thursday.
The Pittsburgh-based company also plans to restructure a third business — electrical and electronic solutions.
The moves come after Alcoa announced last month that it had sold its nearly 7 percent stake in China's largest aluminum maker — Aluminum Corporation of China Ltd., also known as Chalco — for $2 billion. Its 2001 initial investment was less than $200 million.
"These portfolio actions, combined with the sale of Alcoa's stake in Chalco, will significantly enhance the company's capital structure and add flexibility for both growth opportunities and other initiatives to improve shareholder value," Alcoa said in a statement.
Charles Bradford, an industry analyst with Bradford Research/Soleil Securities, said the charges incurred by the planned transactions should not have a negative effect on the company overall. "It's a net plus," he said.
"It improves their returns because the most profitable part of the business is upstream," he said, referring to aluminum production rather than product manufacturing. "These less profitable activities — it's over."
There are plenty of companies making aluminum products and stirring demand for the metal, so there is no need for Alcoa to continue doing it, he said.
Alcoa said in April it was considering the sale of the packaging and consumer division, which accounts for about 10 percent of annual revenue, and was exploring strategic options for the other two units.
The packaging and consumer business includes Alcoa's flexible packaging and consumer products units as well as Closure Systems International and Reynolds Food Packaging.
Alcoa said it had "strong indications" from potential buyers and planned to complete a sale by late 2007 or early 2008.
The company also said it had nearly reached a definitive agreement to sell its automotive castings business and should be able to close that deal by the end of the year.
Alcoa did not disclose terms of the deal.
The company, one of the world's largest producers of aluminum, added that it plans to restructure its electrical and electronic solutions unit in the Americas and Europe to improve return and profitability.
Alcoa plans to record after-tax restructuring and impairment charges in its third quarter of about $195 million related to the electrical and electronic solutions business, $50 million for charges related to the automotive castings business, and $600 million for the planned sale of the packaging and consumer business.
The majority of the $600 million charge is related to income tax, the company said.
The company will release its third quarter financial statement on Tuesday.
The sale of the businesses may also make Alcoa more attractive as a potential takeover target as possible buyers may not be interested in its manufacturing operations, Bradford said.