Alcoa (AA-NYSE) has just announced that it will explore strategic alternatives for the disposition (sale/spin-off/etc.) of its PACKAGING & CONSUMER segment.  This unit generated $3.2 Billion in revenues and $95 million after-tax operating income in 2006, which is roughly 10% of the entire organization’s revenues.  The company claims this unit is strengthening and that profit more than doubled after restructuring.

The CEO has said it is time to see if these operations may generate more value on their own or as part of another company.  Back on February 8, 2007, we issued our own break-up analysis for Alcoa shares, and we came up with a value that was even far north of current prices.   We also noted this as one of the most undervalued stocks in December 2006.

Here are the operations up for review, which have a combined 10,000 workers in some 22 countries:

    * Flexible Packaging, manufacturers of laminated, printed, and extruded non-rigid packaging materials such as pouch, blister packaging, unitizing films, high quality shrink labels and foil lidding for the pharmaceutical, food & beverage, tobacco and industrial markets.
    * Closure Systems International, a global manufacturing leader of plastic and aluminum packaging closures and capping equipment for beverage, food and personal care customers.
    * Consumer Products, a leading manufacturer of branded and private label foil, wraps and bags.
    * Reynolds Food Packaging, makers of stock and custom products for the foodservice, supermarket, food processor and agricultural markets including foil, film, and both plastic and foil food containers.

Separately, the company said it will explore strategic alternatives involving its Electrical and Electronic Solutions, and automotive castings businesses. These businesses had combined 2006 revenues of approximately $1.6 billion and were marginally profitable.

Alcoa says that it anticipates the process will be completed by the end of 2007.  If you add these up it looks like $4.8 Billion of the company’s $30.379 Billion in revenues are up for sale.  This is far from an outright bid, but the company is going for the "unlocking of value" strategy.  Alcoa shares are indicated up 6% at $36.00-ish, right up by a 52-week high of $36.96 ($26.39 lows). 

Jon C. Ogg
April 25, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.

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