Alcoa Gains Freedom to Split Under Deal With Alumina

Alcoa (AA) and Alumina have dropped legal action against each other after striking new agreements relating to a key joint venture. The peace deal removes a threatened delay to New York-listed Alcoa's plans to split and establishes Australia-based Alumina as a potential takeover target.

Under the terms of the deal, both companies will gain liberty to make strategic decisions within and outside of their Alcoa World Alumina and Chemicals, or Awac, joint venture in the event of a takeover of either  JV partner.

Alcoa owns 60% of Awac, which is the world's largest bauxite and alumina producer. Alumina owns the rest of the JV, which is its main asset.

Crucially for the junior partner, the new deal also removes a handful of poison pills that had made it unlikely that anyone except Alcoa could buy Alumina.

The "provisions have acted as a barrier to strategic interest in Alumina Ltd. in the past," Alumina CEO Peter Wasow told analysts on a call. "We look forward to being more in control of our destiny."

Wasow later told journalists that he was not aware of any interest in the company.

Shares in Alumina closed Friday at A$1.38, up A$0.08, or 5.8%, on their Thursday close, leaving the stock up a slim 2.2% over the past 12 months.

"The AWAC JV reshaping may be a catalyst to address recent underperformance" at Alumina, noted Shaw and Partners analyst Peter O'Connor.

Among the changes to the Awac JV agreement is the removal of a clause requiring that a buyer of either Alumina or Alcoa sell its bauxite and alumina assets to Awac, a rule that served to make an acquisition unpalatable to mining companies.