Published on 14 Mar 2024 on Zacks via Yahoo Finance

Alcoa (AA) Inks Definitive Deal to Acquire Alumina for $2.2B

Alcoa Corporation AA recently finalized a binding Scheme Implementation Deed ("Agreement") to acquire Alumina Limited in an all-scrip or all-stock transaction. The agreement, first announced in February, is expected to be completed in the third quarter of 2024.Headquartered in Southbank, Victoria, Australia, Alumina invests in bauxite mining, alumina refining and aluminum smelting operations primarily in Australia, Brazil and Spain.This latest deal highlights the strength of Alcoa’s long-standing partnership with Alumina. Both companies have collaborated as joint venture partners in a refining and smelting business, Alcoa World Alumina and Chemicals (“AWAC”), which operates across multiple countries.Per the agreed terms, Alumina shareholders will be entitled to receive 0.02854 shares of Alcoa for each share of Alumina, a ratio implying an equity value of about $2.2 billion for Alumina. This distribution will offer Alumina shareholders with an ownership stake of 31.25% in the combined company, while the remaining 68.75% of the stake will be owned by Alcoa shareholders.Alumina shareholders will obtain Alcoa shares in CHESS Depositary Interests form, which will facilitate them in trading Alcoa shares on the Australian Stock Exchange for a minimum of 10 years.Alcoa believes this acquisition will strengthen its position as one of the largest bauxite and alumina producers in the world, thus providing better opportunities for value creation. With this buyout, management expects to be less dependent on other suppliers and effectively cater to the increased global demand for aluminum. The transaction will also help AA to effectively manage the current portfolio restructuring actions in AWAC and flourish through better operational focus and financial flexibility.

Zacks Rank & Price Performance

Alcoa, with a $5.5 billion market capitalization, currently carries a Zacks Rank #3 (Hold). The company has been reaping the benefits from higher shipments of alumina, primarily driven by increasing trading activity and shipments across refineries. Also, lower raw materials and decreasing production costs have been supporting the company’s performance.