ARCONIC INC.: A SPIN-OFF OF ITS GLOBAL ROLLED PRODUCTS
BUSINESS CASE STUDY SOLUTION
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SYNOPSIS
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Arconic Inc. was an international aluminum parts manufacturing and lightweight composite engineering
conglomerate composed of three divisions: Engineered Products and Solutions, Global Rolled Products,
and Transportation and Construction Solutions.2 Much to the surprise of the investment community,
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Arconic Inc. decided not to sell to Apollo Global Management Inc., a premier private equity firm, after
undergoing an auction process in early 2019. One possible course of action was to pursue a spin-off
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transaction, whereby Arconic Inc. would be divided into two publicly traded companies, Arconic
Corporation (the spin off company) and Howmet Aerospace Inc.(the remaining company).
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In 2020, Carla Tubman—a second-year analyst in the industrials division at Bulge Bracket Bank—was on
track to become the division’s first Black female partner. She was tasked with analyzing comparable
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companies to determine a fair valuation for the spin-off. In addition, she needed to create a summary Excel
spreadsheet containing the comparable companies analysis and implied valuation analysis, using multiples
of revenue, earnings before interest, taxes, depreciation, and amortization (EBITDA), and 2021 estimated
earnings per share (EPS), as well as a three-to-five-slide PowerPoint presentation detailing the rationale for
choosing the comparable companies and the implied valuation.
OBJECTIVES
• Determine which companies are comparable, based on both quantitative and qualitative assessments.
The Case Solution Starts From page 6
, Use publicly traded companies to estimate the valuation of a newly traded company.
Identify which multiples to use to determine valuation.
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pl
ASSIGNMENT QUESTIONS
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1. Describe Arconic Corporation’s business from both qualitative and quantitative perspectives in terms
of aspects including but not limited to geographic concentration, key customers and industries served
(i.e., end markets), finished products, and alloy concentration (alloy versus composite).
2. Which firms do you think are comparable based on their qualitative characteristics, and why?
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3. Which firms do you think are comparable based on their quantitative characteristics, and why?
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4. Which multiples are best suited for use in valuing the company?
5. What is your valuation range based on your analysis?
lu
So
The Case Solution Starts From page 6
,ANALYSIS
1. Describe Arconic Corporation’s business from both qualitative and quantitative perspectives in terms
of aspects including but not limited to geographic concentration, key customers and industries
served (i.e., end markets), finished products, and alloy concentration (alloy versus composite).
Arconic Corporation was to include the following subsegments: Rolled Products, Aluminum Extrusions, and
Building and Construction Systems. These segments would continue to operate on an international basis.
The Rolled Products segment manufactured and supplied aluminum sheet and plate to customers in the
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ground transportation, aerospace, industrial, and packaging end markets. Its capabilities included producing
pl
aluminum alloys for the automotive and aerospace industries. Key finished products3 produced for these
end markets included autobody sheets; airframes; moulds and tooling plates for semiconductors; and
m
material for aluminum cans.
The Aluminum Extrusions segment provided a variety of extruded metallic profiles for use in the ground
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transportation, aerospace, and industrial end markets. The finished products created for these end markets
included high-strength rods and bars, automotive shapes (driveshafts), and aerospace shapes (floor beams
and cargo holders).
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The Building and Construction Systems segment provided innovative complex architectural systems and
tio
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So
The Case Solution Starts From page 6
, EXHIBIT -1: COMPARABLE FIRM CALCULATIONS – SELECTED QUALITATIVE COMPARABLE COMPANIES
Company
ATI APOG CSTM KALU NHYDY STLD TDG ARNC
International yes yes yes yes yes no yes
Aluminum focus no no yes yes yes no no
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Metals processing* yes no yes yes yes yes no
Specialized metals and materials† yes yes no no no no no
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‡ yes yes yes yes no
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§
yes yes yes yes yes yes no yes
8.1% 22.3% 6.2% 4.1% (3.1%) 4.7% 26.9% 3.3%
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9.7% 43.5% 0.0%
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The Case Solution Starts From page 6
, EXHIBIT -2: COMPARABLE FIRM CALCULATIONS—SELECTED QUANTITATIVE COMPARABLE COMPANIES
Stock
price on Shares Mrkt. Net Enterprise Net 2021E
Company 2/5/2020 out. cap. debt value Revenue EBITDA income EPS
Allegheny Technologies $19.40 126 $2,446 $1,708 $4,154 $4,123 $522 $263 $2.12
Apogee Enterprises Inc. 33.25 27 881 299 1,180 1,409 150 54 3.37
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Constellium SE 12.69 138 1,750 3,112 4,862 6,627 599 92 1.59
Kaiser Aluminum
pl
m
Sa
n
tio
lu
So
The Case Solution Starts From page 6
BUSINESS CASE STUDY SOLUTION
e
pl
SYNOPSIS
m
Sa
Arconic Inc. was an international aluminum parts manufacturing and lightweight composite engineering
conglomerate composed of three divisions: Engineered Products and Solutions, Global Rolled Products,
and Transportation and Construction Solutions.2 Much to the surprise of the investment community,
n
Arconic Inc. decided not to sell to Apollo Global Management Inc., a premier private equity firm, after
undergoing an auction process in early 2019. One possible course of action was to pursue a spin-off
tio
transaction, whereby Arconic Inc. would be divided into two publicly traded companies, Arconic
Corporation (the spin off company) and Howmet Aerospace Inc.(the remaining company).
lu
In 2020, Carla Tubman—a second-year analyst in the industrials division at Bulge Bracket Bank—was on
track to become the division’s first Black female partner. She was tasked with analyzing comparable
So
companies to determine a fair valuation for the spin-off. In addition, she needed to create a summary Excel
spreadsheet containing the comparable companies analysis and implied valuation analysis, using multiples
of revenue, earnings before interest, taxes, depreciation, and amortization (EBITDA), and 2021 estimated
earnings per share (EPS), as well as a three-to-five-slide PowerPoint presentation detailing the rationale for
choosing the comparable companies and the implied valuation.
OBJECTIVES
• Determine which companies are comparable, based on both quantitative and qualitative assessments.
The Case Solution Starts From page 6
, Use publicly traded companies to estimate the valuation of a newly traded company.
Identify which multiples to use to determine valuation.
e
pl
ASSIGNMENT QUESTIONS
m
Sa
1. Describe Arconic Corporation’s business from both qualitative and quantitative perspectives in terms
of aspects including but not limited to geographic concentration, key customers and industries served
(i.e., end markets), finished products, and alloy concentration (alloy versus composite).
2. Which firms do you think are comparable based on their qualitative characteristics, and why?
n
3. Which firms do you think are comparable based on their quantitative characteristics, and why?
tio
4. Which multiples are best suited for use in valuing the company?
5. What is your valuation range based on your analysis?
lu
So
The Case Solution Starts From page 6
,ANALYSIS
1. Describe Arconic Corporation’s business from both qualitative and quantitative perspectives in terms
of aspects including but not limited to geographic concentration, key customers and industries
served (i.e., end markets), finished products, and alloy concentration (alloy versus composite).
Arconic Corporation was to include the following subsegments: Rolled Products, Aluminum Extrusions, and
Building and Construction Systems. These segments would continue to operate on an international basis.
The Rolled Products segment manufactured and supplied aluminum sheet and plate to customers in the
e
ground transportation, aerospace, industrial, and packaging end markets. Its capabilities included producing
pl
aluminum alloys for the automotive and aerospace industries. Key finished products3 produced for these
end markets included autobody sheets; airframes; moulds and tooling plates for semiconductors; and
m
material for aluminum cans.
The Aluminum Extrusions segment provided a variety of extruded metallic profiles for use in the ground
Sa
transportation, aerospace, and industrial end markets. The finished products created for these end markets
included high-strength rods and bars, automotive shapes (driveshafts), and aerospace shapes (floor beams
and cargo holders).
n
The Building and Construction Systems segment provided innovative complex architectural systems and
tio
lu
So
The Case Solution Starts From page 6
, EXHIBIT -1: COMPARABLE FIRM CALCULATIONS – SELECTED QUALITATIVE COMPARABLE COMPANIES
Company
ATI APOG CSTM KALU NHYDY STLD TDG ARNC
International yes yes yes yes yes no yes
Aluminum focus no no yes yes yes no no
e
Metals processing* yes no yes yes yes yes no
Specialized metals and materials† yes yes no no no no no
pl
‡ yes yes yes yes no
m
§
yes yes yes yes yes yes no yes
8.1% 22.3% 6.2% 4.1% (3.1%) 4.7% 26.9% 3.3%
Sa
9.7% 43.5% 0.0%
n
tio
lu
So
The Case Solution Starts From page 6
, EXHIBIT -2: COMPARABLE FIRM CALCULATIONS—SELECTED QUANTITATIVE COMPARABLE COMPANIES
Stock
price on Shares Mrkt. Net Enterprise Net 2021E
Company 2/5/2020 out. cap. debt value Revenue EBITDA income EPS
Allegheny Technologies $19.40 126 $2,446 $1,708 $4,154 $4,123 $522 $263 $2.12
Apogee Enterprises Inc. 33.25 27 881 299 1,180 1,409 150 54 3.37
e
Constellium SE 12.69 138 1,750 3,112 4,862 6,627 599 92 1.59
Kaiser Aluminum
pl
m
Sa
n
tio
lu
So
The Case Solution Starts From page 6
