Capital Markets

Big Buyback Helps Alcoa Forge a Strategy

Aluminum giant, thwarted in M&A plans, boosts repurchase plan from 10 to 25 percent as part of new approach to calming holders.
Roy Harris and Stephen TaubOctober 10, 2007

Alcoa Inc. chose a huge expansion of its stock buyback plans as a path to relieving shareholder pressure over a thwarted acquisition, slower earnings growth, and increasing aluminum-industry cost pressures.

In announcing Q3 earnings, the Pittsburgh-based metal maker said directors authorized a total repurchase of 25 percent, or 217 million shares. It noted that under its earlier 10-percent repurchase program, 43 million shares, or 5 percent, already had been purchased as of the end of the period, “leaving the company with authorization to buy back approximately 174 million shares.”

Alcoa’s earnings report showed quarterly income from continuing operations of $558 million, or 64 cents a share, up three percent from the same period in 2006. Net income was $555 milllion, or 64 cents a share. Revenues slipped to $7.39 billion from 7.63 billion in the year-earlier quarter.

Last month, the company sold its 7 percent stake in the Aluminum Corp. of China Ltd., which it calls Chalco, for $2 billion, giving Alcoa a profit from the sale of more than $1 billion, according to Bloomberg at the time. “The Chalco sale, combined with proceeds from the upcoming sales of our packaging and auto castings businesses, give us a strong balance sheet, increased flexibility to ramp-up share repurchases, and deliver greater shareholder value,” Alcoa chairman and CEO Alain Belda said in the Q3 earnings release.

Further explaining the quarterly results, Belda said: “Macroeconomic drivers such as the weakening U.S. dollar, higher petroleum costs, and market softness in North America impacted the quarter. Despite these challenges, we have established all-time records for revenue, net income, earnings per share, and cash from operations in the first nine months of the year.”

The company’s biggest setback this year was its failed attempt to acquire Alcan Inc. for $32 billion, an offer eventually topped by Rio Tinto PLC for $10 billion more than what Alcoa bid. Lately, in addition to buying back shares, Alcoa began adopting a strategy of selling some operations that in consumer-packaging and the auto industry, to focus more on smelting aluminum.

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