Kaiser Aluminum (NASDAQ:KALU) after markets closed Monday agreed to buy Alcoa's (NYSE:AA) rolling mill business for $670 million. The market likes the deal from both the buyer's and the seller's perspective, pushing shares of both companies up more than 10% on Tuesday.
Alcoa has struggled in recent years, and in 2019 launched a program to sell between $500 million and $1 billion of assets deemed non-core in response to weak commodity prices.
The company late Monday hit its goal when it announced the sale of its Warrick rolling mill business located in Evansville, Indiana, to Kaiser for $670 million, including $587 million in cash and the assumption of $83 million in employee liabilities.
Warrick makes aluminum packaging used in beverage and food cans. In the last 12 months the unit has shipped more than 675 million pounds of aluminum, with more than half of it higher-margin coated packaging products. As part of the deal, Alcoa will retain ownership of the smelter and electric generating units at Warrick. Alcoa will also enter into a market-based metal supply agreement with Kaiser at closing.
The proceeds, along with $200 million in cash Alcoa will receive for the sale of assets in Arkansas, puts the company well on its way toward streamlining its business and raising cash.
B. Riley Securities analyst Lucas Pipes in a note Tuesday said that while investors were likely hoping for a higher valuation on the rolling mill, the sale should advance Alcoa's transformation. The analyst raised his price target for Alcoa to $20, from $14, but kept a neutral rating on the shares.
For Kaiser, the rolling business adds a less-cyclical component to a portfolio that has heavy exposure to aerospace, automotive, and general engineering industries.
It will take time to see how the deal plays out, but on day one shareholders on both sides seem happy and the stocks are both taking off as a result.