American Arconic sold aluminum business in Russia

U.S.-based aluminum products manufacturer Arconic Corporation has sold its Russian business for $230 million, the company announced Nov. 16. The buyer of the asset was the Industrial Investments company of businessman Mikhail Shelkov. He is also the main shareholder (65%) of the largest Russian titanium producer – “VSMPO-Avisma“. In Russia, Arconic owned the Samara Metallurgical Plant (Arkonik SMZ).

The deal was closed after obtaining all the necessary permits, explains the American company. In its announcement, Arconic points out that the company’s funds held in Russia “were not available due to legal proceedings” initiated by the Federal Antimonopoly Service (FAS) of Russia. “Arconic has sold assets subject to FAS restrictions and therefore considers the lawsuit settled as a result of the sale,” the company said.

Restrictions on the withdrawal of Arkonik SMZ profits from Russia were introduced in 2020. The FAS accused the American company Elliott of illegally obtaining indirect control over the enterprise and blocked Arconic from changing the composition of the board of directors and making decisions on the payment of dividends.

The representative of “Industrial Investments” confirmed the closing of the transaction. “This is a commercially profitable deal, especially given the production and business synergy between “VSMPO-Avisma“and SMZ”, – said the source of “Vedomosti”. In September 2016, the companies set up a joint venture to manufacture large-sized forgings from aluminum and titanium alloys for the aircraft industry.

Arconic announced its intention to sell the Russian business in May this year. Then the company noted that it had conducted a thorough analysis of strategic alternatives, taking into account the imposed restrictions. Arconic estimated the losses associated with the sale of the Russian business at $500 million. The report also said that the conflict in Ukraine made the operation of the American company in Russia insolvent. Earlier, on March 10, after the start of the CBO in Ukraine, Arconic said that it would continue its activities in Russia, which was aimed only at fulfilling existing contractual obligations, and would suspend the negotiation of contracts for new projects.

Samara Metallurgical Plant is one of the largest producers of aluminum semi-finished products in Russia. The plant was put into operation in 1960. In 1998, the plant was acquired by Oleg Deripaska’s Siberian Aluminum Company. In 2005, the company became part of the international company Alcoa. Since the division of Alcoa in 2016, Arconic SMZ has been part of Arconic Corporation.

The plant produces aluminum semi-finished products (sheets, plates, profiles, panels, pipes, stampings). In 2021, production amounted to 260,000 tons. Consumers of products are enterprises in the aviation, space, packaging, shipbuilding, automotive, construction, oil and gas industries, transport engineering and other industries. The company employs about 3,000 people.

In 2021, the revenue of Arkonik SMZ amounted to $968 million, the share of the Samara plant in the total revenue of Arconic Corporation is 16%. Income from sales of Arkonik SMZ products on the Russian market last year increased by 48.2% to $793 million. Sales of aluminum products from the Samara plant for export were carried out through the Arconic representative office in Hungary. The revenue of the Russian business of Arconic in January-September 2022 amounted to $787 million, EBITDA – $62 million, follows from the reporting of the American company.

A representative of Arkonik SMZ told Vedomosti that the plant continues to operate normally.

The main reason for Arconic’s desire to sell the Russian business is the inability to withdraw profits earned in Russia abroad, experts said earlier (Vedomosti wrote about this on May 20).

Independent industrial expert Leonid Khazanov notes that the amount of the transaction for the sale of Arconic’s business in Russia is significantly lower than the real value of Arkonik SMZ. According to him, an enterprise of this level costs from $500 million to $1 billion. But, according to the analyst, in the current macroeconomic and political conditions, no buyer would agree to purchase an asset for at least $500 million that an American company previously invested in it.

According to Sergey Grishunin, Managing Director of the NRA Rating Service, the discount in the final amount of the transaction exceeded 50%. According to him, this situation is typical for foreign companies leaving the Russian market.

Khazanov adds that the very fact of Arconic’s ownership of the Samara Metallurgical Plant looked like “political nonsense” against the background of the sanctions war unleashed by the United States against Russia: the American corporation controlled an enterprise of strategic importance for a number of domestic industries.

According to Khazanov, after the closing of the deal, Arkonik SMZ will strive both to strengthen its position in the Russian domestic market and to develop export deliveries, for example, to Asian countries. Now the share of Arkonik SMZ in the Russian market, according to Khazanov, is at least 40%, and in the can tape segment (a semi-finished product for the production of aluminum cans for drinks. – Vedomosti), he is a monopolist. Among the clients of Arkonik SMZ are the Polish Canpack, the American Ball and, most likely, Airbus, the expert notes. At the same time, the analyst admits “close cooperation” between Arkonik SMZ andVSMPO-Avisma“.

Grishunin estimates the share of Arkonik SMZ at 15-20% of the Russian market. In his opinion, the deal will lead to cooperation between Arkonik SMZ andVSMPO-Avismaand Rostec The latter owns 25% plus one share in VSMPO-Avisma. “For VSMPO-Avsima, this is a continuation of the corporation’s aerospace focus and business diversification,” he notes. Grishunin admits that in the future, part of the asset may be transferred to Rostec if this is required by corporate procedures.

Vedomosti sent inquiries to VSMPO-Avsima and Rostec.