Page 25 - aruba today sept 29,2015

BUSINESS A25
Tuesday 29 September 2015

Glencore share price plunges Alcoa splitting into 2 companies

as commodity markets slump NEW YORK (AP) — Alcoa free the stronger part of a sue their own distinctive
will split into two indepen- company’s business from a strategic directions,” Chair-
PAN PYLAS dent companies, separat- weaker segment. man and CEO Klaus Klein-
Associated Press ing its bauxite, aluminum The aluminum and up- feld said in a statement.
LONDON (AP) — Commodities group Glencore saw its and casting operations stream products company The company has been
share price plunge by around a third on Monday as from its engineering, trans- will retain the Alcoa name. shifting its focus to its more
concerns mounted over its ability to service its sky-high portation and global rolled The name of the engi- profitable automotive and
debts at a time when earnings are battered by low products businesses. neered products company aerospace products, which
commodity prices. The century-plus-old metals has yet to be determined. also involve titanium. It has
The troubles at the company, which is one of the maker has been dealing Alcoa Inc., which is based been shutting down unprof-
world’s largest producers and traders of commodities, with a downturn in its smelt- in New York with significant itable aluminum smelters as
illustrate the dramatic changes sweeping through the
industry as an economic slowdown in China weighs on The Alcoa logo is seen in the lobby of Alcoa’s headquarters in Pittsburgh. Alcoa announced, Mon-
the prices for metals and minerals. day, Sept. 28, 2015, it will split into two independent companies by separating its aluminum and
In Glencore’s case, the shares began dropping Mon- automotive metals businesses.
day after investment bank Investec Securities warned
investors that the company may end up having to (AP Photo/Gene J. Puskar)
plow all its earnings into meeting its debt commitments
if commodity prices, notably copper, don’t start rising. ing business because of operations in Pittsburgh, ex- a surplus of the material on
Investec analyst Hunter Hillcoat says Glencore is more lower aluminum prices. The pects the split to be com- the market weighs down
exposed than rivals such as BHP Billiton and Rio Tinto split will create one com- plete by the second half of prices and profit.
because of the sheer size of its debt mountain, which pany focusing on upstream 2016. Earlier this month, Alcoa
stands at around $30 billion. products, including alumi- The company has been an broadened a partner-
In a note to clients, Hillcoat warned that Glencore num. The other company industrial presence in the ship with Ford Motor Co.
could end up “solely working to repay debt obliga- will focus on engineered U.S. economy for well over through the use of a stron-
tions” if commodity prices don’t recover. Under such a products, which includes a century, dating its found- ger form of aluminum for
scenario, Hillcoat said, the value of holding Glencore the automotive and aero- ing as the Pittsburgh Re- auto body parts.
shares is “virtually eliminated.” space segments. duction Co. in 1888. It also spent about $60 mil-
That proposition prompted a savage sell-off of Glen- The split is part of a wider “In the last few years, we lion to expand its three-di-
core shares, which closed down 29 percent at 69 movement by companies have successfully trans- mensional manufacturing
pence in London, slightly higher than the all-time low to spin off units in a bid to formed Alcoa to create capabilities at a technical
of 67 pence recorded earlier in the day, according to boost shareholder value. two strong value engines center in the Pittsburgh
financial information provider FactSet. Often, the strategy helps that are now ready to pur- area. q
Glencore, which was founded in 1974 by the late com-
modities trader Marc Rich, floated in 2011 at a share Nexstar offers $1.9B for Media General
price of 530 pence, a listing that valued the company
at a little less than 40 billion pounds ($60 billion) and TOM MURPHY 20 magazines. mium to Media General’s
made several of the company’s executives, including AP Business Writer The deal, according to Me- closing price Friday.
CEO Ivan Glasenberg, billionaires. Nexstar Broadcasting, at- dia General, would create The Irving, Texas, company
A person close to Glencore, who spoke on condition tempting to drive to wedge a company with almost 90 values the deal at $4.1 bil-
of anonymity because he was not authorized to speak between Media General television stations in 54 mar- lion including debt. Nex-
on the record, said Investec’s analysis was “flawed” and Meredith Corp., of- kets and magazines includ- star owns, operates, pro-
and noted that the company was on course to have fered nearly $1.9 billion ing Better Homes and Gar- grams or provides services
free cash flow — what’s left after debt payments — of to buy Media General on dens and Martha Stewart to 107 television stations in
around $3 billion this year at current market prices. Monday. Living. 58 markets. It said a tie-up
Sentiment toward Glencore PLC, which is headquar- Media General Inc. ear- Nexstar on Monday bid a with Media General would
tered in Switzerland, has been fragile for months as in- lier this month made a $2.4 combination of cash and reach 39 percent of U.S. TV
vestors fretted over the impact of falling commodity billion offer for Meredith, stock valued at $14.50 households and create the
prices on earnings and the company’s ability to meet which owns television sta- for each Media General second-largest owner of
its debt repayments. tions and publishes about share, a 30 percent pre- major network affiliates.q
China’s economic downturn is at the heart of Glen-
core’s difficulties. Mining and commodities companies
sought to take advantage of the country’s booming
growth at the turn of the decade, when many of the
world’s leading economies were struggling to emerge
from the global financial crisis and ensuing recession.
According to Investec’s Hillcoat, mining companies
“gorged themselves on cheap debt in a race to grow
production following the Chinese stimulus that oc-
curred in the wake of the global financial crisis” and
that the consequences of that “are only now coming
home to roost, as mines take a long time to build.”
Debt, said Hillcoat, “is fast becoming the most impor-
tant consideration for mining company management.”
Commodity prices, meanwhile, have dropped sharply
in recent months. Copper, which is used in electronics
and which Glencore is particularly exposed to, is trad-
ing near six-year lows.
Glencore is aware of its problems. Earlier this month, it
announced a package of measures — from asset sales
to suspending dividends and raising cash from new
and existing shareholders — that it hopes will reduce
debt by $10 billion.q