Saying the unit no longer jibes with its core building and construction portfolio, Pittsburgh-based Alcoa Inc. is selling its residential building products business, Alcoa Home Exteriors Inc., the aluminum giant announced April 13.
Market dynamics in the global aluminum industry have required Alcoa to tie up much of its financial resources in technological advancements in that arena, leaving less money for support of its various business units, including vinyl siding operations.
``With the worldwide shortage in aluminum, Alcoa is making significant advancements in refining and smelting. They've already committed several billion,'' said Gary Acinapura, president of Alcoa Home Exteriors, in an April 13 telephone interview. ``In that environment, Alcoa's conclusion is that it will be difficult for it to be able to continue to support Home Exteriors to reach the growth levels we believe we can get to.''
Home Exteriors' 2005 sales were about $600 million, a fraction of Alcoa's corporate sales of $26.2 billion. According to Plastics News' most recent pipe, profile and tubing extruders ranking, the unit sold nearly $340 million in plastic profile extrusions and ranked 11th in North America.
About 1,400 people work for Alcoa Home Exteriors, which has manufacturing sites in Atlanta; Gaffney, S.C.; Denison, Texas; Sidney, Ohio; and Stuarts Draft, Va.
Alcoa officials have targeted strategic buyers that will be invited to the table in the coming days and weeks, Acinapura said. New York-based investment house Lehman Bros. Holdings Inc. is coordinating the sale. Alcoa Home Exteriors manufactures vinyl and aluminum siding, wood-plastic composite deck and railing systems, soffit, trim and fascia.
The pending sale is part of a systematic trimming of noncore operations. Last year, Alcoa sold Southern Graphic Systems Inc. for $410 million, four railroads for $78 million and a 50 percent stake in Integris Metals for about $330 million.
``I think they're looking at where the majority of their net [income] is coming from,'' said Andrew Seibert, a senior portfolio manager for Indiana, Pa.-based S&T Wealth Management, in an April 14 interview. ``They're looking at the business that's making them the most money.''
Seibert, who owns Alcoa stock, said the firm is simply practicing good business.
``This is going to free up cash that they can invest elsewhere,'' he said. ``Vinyl siding is big when construction is big, and we've pretty much peaked out in this cycle,'' he said. ``They're getting out at the top. That's just good business. You go to where you think the next cycle is. For them, it's going to be in providing materials for expanding countries like China and India. It's going to be in smelting and minerals, and those kinds of products.''
There are no guarantees with a new owner, but Acinapura said the Alcoa Home Exteriors' solid financial performance likely will discourage the new regime from implementing radical change.
``If we were a distressed company underperforming, one could speculate that [a new owner] could consolidate the operations,'' he said. ``The fact is, we're a very well-run company. I believe we have an excellent management team and our employees are among the best in the industry. Those are valuable assets to someone buying the company. There's tremendous value in the people we have here.''
Seibert agreed with industry insiders who speculate that a private equity firm is likely to buy the building products unit.
``Private equity firms are the ones gobbling up big portions of this business,'' he said.
To attain the 15-18 percent return on equity that investors will be looking for, some trimming should not be unexpected, he said. ``I'm not looking at it as a humanitarian. I'm looking at it from an investment banking perspective,'' Seibert said.
Acinapura said he would like to remain with the company under new ownership: ``Again, there's no assurances. This is a company I've run now for the last 5½ years. Certainly it would be my desire to stay with the business and continue on until I retire. That will be up to the new buyer.''
He said competitive pressures in vinyl siding have nothing to do with the decision to sell.
``For what it's worth, the vinyl siding business has sold 40 million squares each year for the past 10 years,'' he said. ``Vinyl, as a cladding material, continues to be the largest material used by a factor of two over its nearest competitor. The vinyl siding market is vibrant, healthy and very large.''