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November 6, 2007

Alcoa sells auto castings business to Monomoy

Matthew Lerner
November 6, 2007

Alcoa Inc., Pittsburgh, has sold its automotive castings business to Compass Automotive Group LLC, a company owned by private equity fund Monomoy Capital Partners LP, New York.

Financial terms were not disclosed.

Alcoa had previously announced its intentions to sell the unit, which had 2006 revenue of approximately $150 million. The business employs about 530 people and has two main operating locations, the Michigan Casting Center in Fruitport, Mich., and the Scandinavian Casting Center in Farsund, Norway.

The business makes a range of suspension and chassis components, including subframes, cradles, steering knuckles, engine brackets and control arms, through a proprietary low-pressure casting technology, Monomoy said in a statement.

Justin Hillenbrand, a partner at Monomoy, said the firm sees potential in the castings sector. "The opportunity is in highly engineered safety-critical components," he said. "Quality is paramount, more so than price. This insulates us somewhat from Asian and European competition."

He added that the labor component of such operations is small, so any offshore pricing advantage is offset by international shipping costs.

"We like this niche in North America. We think we can provide a very viable proposition for customers," Hillenbrand said.

The Alcoa business will be merged into Casting Technologies Co., a wholly owned subsidiary of Compass. "The Alcoa business adds a significant presence in two areas, control arms and subframes, and also brings tremendous engineering capability," Hillenbrand said. He added that the Alcoa business also brings a proprietary technology that allows the casting of thin-walled components that otherwise would have to be fabricated.

While the majority of the company's business and manufacturing is in North America, Compass is also expanding aggressively into Mexico.

"We are seeing unbelievable demand for our products from Mexico," Hillenbrand said. In fact, Compass is nearly finished building a greenfield casting facility in Chihuahua, Mexico, which is expected to begin production in early 2008. "All that we really have left do is move in the equipment," he said. He could not disclose the cost of the new plant.

Compass' near-term attention will be turned toward absorbing the Alcoa acquisition, but Hillenbrand does not discount further expansion.

"We will focus the next six months on integrating the Alcoa business and will grow where it makes sense strategically," he said. "Should another opportunity come up, we would certainly evaluate it."

Alcoa is also continuing to pursue the sale of its Packaging and Consumer business. The company says it has received strong indications from potential buyers for that business, and plans to complete the transaction by late 2007 or early 2008.

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