Nemak could be spun off from Mexican holding company

Mexico-based ALFA S.A.B. de C.V. has announced today it will hold an extraordinary shareholders’ meeting to present a proposal for the spin-off of its entire ownership stake in aluminum automotive components maker Nemak S.A.B. de C.V.

Nemak operates more than 30 plants globally, many of which melt scrap to make aluminum die cast components such as engine blocks, cylinder heads and battery housings. Nemak had about $4 billion in revenue in 2019, with 56 percent of that figure earned in North America and 35 percent in Europe.

In a March presentation to investors, Nemak indicated it is investing to boost its presence in the electric vehicle (EV) components market, including in the production of EV structural frames. The effort most likely is a hedge against Nemak’s die casting operations being linked largely to the internal combustion engine (ICE) sector.

“Subject to the corresponding approvals, ALFA expects to execute the spin-off as a splitting entity, without the company being dissolved,” states ALFA. The parent company says the new entity to be spun off would be known as Controladora Nemak, which would be listed on the Mexican Stock Exchange. ALFA says it intends to transfer its entire share ownership in Nemak to Controladora Nemak, “as well as certain assets and capital.”

“The spin-off of our share ownership in Nemak is the first step in the evolution toward the independence of our main businesses,” says Armando Garza Sada, ALFA’s board chair. “Through this transaction, we begin to transfer higher autonomy and optionality to our shareholders and business units in order to unlock ALFA’s high value potential based on its fundamentals.”

The proposal has been approved by ALFA’s board of directors and is subject to approval at the Extraordinary Shareholders’ Meeting, scheduled for Aug. 17.

“ALFA and Nemak have strong financial and business positions to implement this initiative,” says Alvaro Fernández Garza, president of ALFA. “We reiterate our commitment to maintain best practices in corporate governance and financial discipline across all our businesses. We plan a gradual and orderly transition process to make Nemak an independent business.”

The spin-off proposal has ALFA shareholders receiving one share of Controladora Nemak for each of their ALFA shares, in addition to retaining their share ownership in ALFA’s equity.