Alumina, Alcoa call off court action over demerger

A deal with Australia’s Alumina will end legal action over Alcoa’s $16bn demerger and change their joint venture.

Producing rolls of aluminium.

Aluminium giant Alcoa and Australia’s Alumina have agreed to terminate their litigation over Alcoa’s $16 billion demerger and make amendments to their joint venture agreement.

The news helped drive a strong bid on Alumina shares this morning, which traded up 5.8 per cent at $1.375 at 12pm (AEST).

The deal follows earlier concerns from Alumina (AWC) that the demerger was a breach of the AWAC joint venture’s terms, with Alumina having argued that a spin-off would force a new — and financially weaker — partner onto it.

New York-based Alcoa had accused Alumina of being opportunistic in its efforts to get a better deal out of the planned separation.

The companies now say they will alter their agreement to promote better information sharing, joint input on significant decisions, faster decision-making and a more streamlined dispute resolution process.

The changes provide that if a change of control of Alumina occurs, Alumina or its acquirer would be entitled to buy alumina and bauxite at market prices for its internal consumption. It would also be entitled to buy one million tonnes of alumina at market prices for resale.

The companies also agreed that the JV will change its dividend policy, paying out every quarter at least 50 per cent of the prior quarter’s net profit for each partner comprising the JV, instead of the current annual dividend of 30 per cent of after-tax operating income.

In terms of governance, the range of issues that require an 80 per cent majority vote of approval has been expanded.

The groups also agreed that if either party has a change of control, the provisions of their agreement that compel an acquirer to sell into the joint venture or divest its bauxite or alumina assets, will terminate.

Alcoa’s planned separation involves the spin-off of a new publicly traded company that would hold its upstream interests, including its 60 per cent interest in the AWAC joint venture with Alumina (40 per cent).

Alumina argued the plan was a breach of the AWAC joint venture agreements and triggered first right of refusal offer rights in its favour, as well as requiring Alumina’s consent. Alcoa disagreed.

Alcoa in July conceded Alumina’s court action could derail the demerger, but says it now remains on track.

“We believe these changes create a true win-win situation and will enhance value for our AWAC joint venture, the future Alcoa Corporation, and its shareholders,” said Roy Harvey, President of Alcoa’s Global Primary Products and future CEO of Alcoa Corporation. “We are strengthening our partnership agreement and more closely aligning the partners’ interests.”

“Alcoa looks forward to completing our separation, launching two strong companies later this year, and to working closely with Alumina to realize the full potential of the AWAC partnership.”

Alumina’s CEO Peter Wasow said: “These agreements strengthen the AWAC joint venture for Alcoa and Alumina, giving the companies greater control over their investments and future strategic options. We have enjoyed a successful relationship with Alcoa for over 50 years and look forward to working together in this next phase.”