AA Slashes Dividend to Save $400 million and Looks to Raise $1 billion

AA Bracing for a second quarterly loss

March 16 (Bloomberg) — Alcoa Inc., the largest U.S. aluminum maker, plans to sell stock and convertible notes, slash its dividend and cut costs to conserve cash as the company braces for its second straight quarterly loss.

The quarterly dividend will be reduced to 3 cents a share from 17 cents, New York-based Alcoa said today in a statement. Capital spending in 2010 will be $850 million, about half of this year’s spending, the company said.

Chief Executive Officer Klaus Kleinfeld has cut jobs, slashed output and reduced capital spending as the recession caused aluminum prices to plunge 56 percent in the past year. Alcoa said it will post a first-quarter loss as demand for the metal used in autos, appliances and power grids continues to deteriorate. Alcoa shares have dropped 84 percent in a year.

“Nobody wants to raise equity when their share price is at a 20-year low unless they really need it,” Min Ye, an analyst at Morningstar Inc. in Chicago, said in a telephone interview. “Alcoa’s cash costs are in the middle of the cost curve, and even though they’ve cut capacity, some of their assets are not making money at current prices.”

Alcoa dropped 66 cents, or 11 percent, to $5.46 as of 5:11 p.m., after the close of regular trading on the New York Stock Exchange.

Alcoa said it will sell at least 150 million shares, for proceeds of about $850 million, and will issue as much as $287.5 million in convertible notes due 2014.

Dividend Reduced

The reduced dividend, which is payable May 25 to holders as of May 8, will save $400 million a year, the company said.

“I was really shocked that they paid the last dividend,” said Chuck Bradford, a metals analyst at Bradford Research Inc. in New York who predicts Alcoa may have a loss of 85 cents a share excluding one-time items this quarter. “An awful lot of people thought it was unconscionable.”

Alcoa also plans to reduce costs by more than $2.4 billion, including $2 billion in savings by making the company’s purchasing more efficient and cutting costs by $400 million.

In January, Alcoa announced it would cut output 18 percent and said more reductions may be necessary if demand continued to drop. The company also eliminated 13,500 jobs, or 13 percent of its workforce, and posted its first quarterly net loss in six years.

The company has agreed to sell its investment in Rio Tinto Group to Aluminum Corp. of China for $1 billion and is seeking to sell other businesses to raise additional cash.