Alcoa, parent company of Kawneer, announced that its board of directors unanimously approved a plan to separate into two independent, publicly-traded companies, culminating Alcoa’s successful multi-year transformation. The Upstream Company will comprise five business units that today make up Global Primary Products – bauxite, alumina, aluminum, casting and energy. The Value-Add Company, under which Kawneer falls, will include global rolled products, engineered products and solutions, and transportation and construction solutions. The transaction is expected to be completed in the second half of 2016. At that point, according to a press release, Alcoa shareholders will own all of the outstanding shares of both the Upstream and Value-Add Companies. The separation is intended to qualify as a tax-free transaction to Alcoa shareholders for U.S. federal income tax purposes. According to an Alcoa spokesperson, Kawneer should not be affected by the changes and is expected to operate business as usual in the near future.

Both independent companies will attract an investor base best suited to their unique value proposition and operational and financial characteristics. Both entities will be capitalized prudently, with the Value-Add Company targeting an investment grade rating and the Upstream Company a strong non-investment grade rating. After the separation, the Upstream Company will operate under the Alcoa name. The Value-Add Company will be named prior to closing.

“In the last few years, we have successfully transformed Alcoa to create two strong value engines that are now ready to pursue their own distinctive strategic directions,” says Klaus Kleinfeld, chairman and CEO. “After steering the company through the deep downturn of 2008, we immediately went to work reshaping the portfolio. We have repositioned the upstream business; we have an enviable bauxite position and are unrivalled in alumina, we have optimized aluminum, flexed our energy assets, and turned our casthouses into a commercial success story. The upstream business is now built to win throughout the cycle. Our multi-material value-add business is a leader in attractive growth markets. We have intensified innovation, made successful acquisitions, shed businesses without product differentiation, invested in smart organic growth, expanded our multi-materials profile and brought key technologies to market; all while significantly increasing profitability.”

He continues, “Inventing and reinventing has defined our company throughout its 126-year history. With the unanimous support of Alcoa’s board we now take the next step; launching two leading-edge companies, each with distinct and compelling opportunities, and each ready to seize the future.”

Upon completion of the transaction, Kleinfeld will lead the Value-Add Company as chairman and CEO. He will also serve as chairman of the Upstream Company for the initial phase, ensuring a smooth and effective transition. Each company will have its own independent board of directors that will include members of the current Alcoa board. Full management teams and boards for both companies will be named in the months leading up to the launch of the two companies in the second half of 2016.

After the separation, the Upstream Company will be a cost-competitive industry leader in bauxite mining, alumina refining and aluminum production …, according to the company. Its footprint will include 64 facilities worldwide, and approximately 17,000 employees. Revenues for the 12 months through June 30, 2015 totaled $13.2 billion, with $2.8 billion in EBITDA. It will be committed to disciplined capital allocation and prudent return of capital to shareholders.

Likewise, the release states that the Value-Add Company will be a provider of high-performance multi-material products and solutions with 157 globally diverse operating locations and approximately 43,000 employees. Pro-forma revenues for the Value-Add Company for the 12 months through June 30, 2015 totaled $14.5 billion, with $2.2 billion in pro-forma EBITDA.

As Alcoa has transformed, EBITDA margins for the value-add portfolio have increased from 8 percent in 2008 to 15 percent in 2015 on a pro-forma basis for the 12 months through June 30, 2015. The overall contribution of the value-add portfolio to Alcoa’s after-tax operating income has more than doubled from 25 percent in 2008 to 51 percent in 2014. EBITDA margins in the combined downstream segments (Engineered Products and Solutions and Transportation and Construction Solutions) have increased from 14.6 percent in 2008 to 20.9 percent in 2014, and in the midstream (Global Rolled Products) from $108 per metric ton in 2008 to $289 per metric ton in 2014.

According to the release, the two companies will have distinct value profiles with the ability to effectively allocate resources and deploy capital in-line with individual growth priorities and cash-flow profiles. As independent entities, each will be positioned to capture opportunities in increasingly competitive and rapidly evolving markets. The separation will enable both companies to pursue their own independent strategies, pushing the performance envelope within distinct operating environments.

The transaction is subject to certain conditions, including, among others, obtaining final approval by Alcoa’s board of directors, receipt of a favorable opinion of legal counsel with respect to the tax-free nature of the transaction for U.S. federal income tax purposes, and effectiveness of a Form 10 registration statement to be filed with the U.S. Securities and Exchange Commission. Alcoa may, at any time and for any reason until the proposed transaction is complete, abandon the separation or modify or change its terms.

Morgan Stanley and Greenhill & Co. are serving as financial advisors to Alcoa, and Wachtell, Lipton, Rosen & Katz is serving as legal counsel in connection with the separation.