Alcoa and Alumina Limited have agreed to make changes to the Alcoa World Alumina and Chemicals (AWAC) joint venture that will increase value for the two companies and their respective shareholders.
Alcoa said the JV partners have agreed to end their legal action relating to its pending separation into two independent, publicly traded companies.
According to the company, the changes to the joint venture agreements are intended to “align more closely the partners’ interests in AWAC”, while establishing greater strategic flexibility and autonomy for both partners.
The changes, to be effectuated upon the completion of Alcoa’s separation, will affect the governance and financial policies of the joint venture and promote faster decision-making, joint input on significant decisions, improved information sharing and a more streamlined process for resolving disputes.
They will also simplify AWAC’s dividend and cash management policies and require that AWAC raise a limited amount of debt to fund future mutually agreed growth projects.
Under the amendments to the AWAC Joint Venture, in the event of a change of control of either partner in the future, opportunities for the AWAC partners to engage in expansion and development projects would increase, with each partner having the right to proceed unilaterally with an expansion or development project inside the joint venture if the other partner chooses not to participate.
“A partner that avails itself of such an opportunity would pay for the costs related to the project, including for AWAC resources and shared facilities used, and be entitled to that project’s resulting off-take,” Alcoa said in a press release.
“In addition, upon a change of control, the exclusivity and non-compete restrictions under the current joint venture agreements would terminate, and be replaced by rights of first offer on expansions and other development projects that either party may choose to undertake outside of the joint venture.”
Further, if a change of control of Alumina were to occur in the future, off-take rights for alumina and bauxite would be triggered.
“For example, if an industrial acquirer became the new partner in AWAC it would be entitled to buy alumina and bauxite at market prices for that partner’s internal consumption,” reads the press release.
“In addition, that future partner would also be entitled to buy 1 million tons of alumina at market prices for resale into the market. This could have the effect of establishing a strategic joint venture partner and long-term customer for AWAC.”
Roy Harvey, President of Alcoa’s Global Primary Products and future CEO of Alcoa, said the changes create a true win-win situation for the AWAC joint venture, the future Alcoa Corporation, and its shareholders.
“We are strengthening our partnership agreement and more closely aligning the partners’ interests. We are also establishing a broader set of value-creating options for AWAC by providing its owners with greater strategic flexibility,” Mr Harvey said.
“Among other benefits, this opens the door for an industrial partner to enter the joint venture, and like Alcoa, to become a long term customer for bauxite and alumina. Alcoa looks forward to completing our separation, launching two strong companies later this year, and to working closely with Alumina to realise the full potential of the AWAC partnership.”