Arconic to Break Up, Cut Dividend as New CEO Reveals Revamp

(Bloomberg) -- Arconic Inc. plans to split in two and slash its dividend, marking a dramatic overhaul of the aerospace manufacturer in the wake of its failed sale to a private equity firm. The shares fell.

The company will separate into one company focused on parts making and another on the production of aluminum sheets, 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.

“There are fundamentally different rhythms, return profiles, capital-allocation requirements” for the two business lines, Chief Executive Officer John Plant said on a call with analysts. While he provided few details about the cost or method of the breakup, he said it will take place on an “accelerated” timeline.

The sweeping plan underscores the challenges facing Arconic, which has dropped over the past year as operations stumbled and aluminum prices proved volatile. The company aims to quell the tumult 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 to Break Up, Cut Dividend as New CEO Reveals Revamp

Arconic fell 5.2 percent to $16.76 a share at 11:53 a.m. in New York. The shares tumbled 30 percent over the 12 months through Thursday, while a Standard & Poor’s index of industrial companies declined 4.1 percent.

Under the breakup plan, Arconic will separate its Engineered Products & Forgings business and its Global Rolled Products operation. The company also is cutting 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.

What Bloomberg Intelligence Says

“Arconic’s guidance for $400-$500 million of free cash flow in 2019 and $2.3 billion of cash on hand should provide sufficient liquidity to handle $1.4 billion of debt due through 2020 as management focuses on portfolio reshaping and the potential spinoff of EP&F or GRP.”

--Matthew Geudtner, North American credit analyst

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“We did not receive a proposal for a full-company transaction that we believe was in the best interests of our shareholders,” Plant said in the statement. “The board sees more shareholder value creation through a restructuring of the company.”

Arconic to Break Up, Cut Dividend as New CEO Reveals Revamp

Plant assumed the CEO role this week following the surprise ouster of Chip Blankenship, who led the company for just over a year. Plant, who was already chairman and retained the title following the appointment, is the company’s fourth CEO since early 2017.

Elliott Management, Arconic’s largest shareholder, is unlikely to wage another proxy fight, people familiar with the matter said.

Arconic to Break Up, Cut Dividend as New CEO Reveals Revamp

The breakup plan overshadowed a solid fourth quarter. 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 Wall Street 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 is the latest industrial operation to announce a breakup as investors pressure multi-business companies to maximize shareholder value. General Electric Co. is unloading its transportation unit, spinning off its health-care business and selling a stake in Baker Hughes, while United Technologies Corp. is separating its three primary divisions into stand-alone outfits.

Arconic isn’t new to the process. The company separated 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 percent since the separation, while Arconic has fallen about 6.5 percent -- not quite 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 campaigned 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.

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