Shares of Alcoa rose Thursday after the New York aluminum producer announced plans for a $2.85 billion acquisition that will enlarge its footprint in the expanding aerospace industry.
Alcoa said it will pay $2.35 billion in cash and another $500 million in stock to purchase Firth Rixson, a United Kingdom jet engine component producer.
Oak Hill Capital Partners, the private equity firm that owns Firth Rixson, could receive up to $150 million more depending on Firth Rixson’s post-acquisition performance, Alcoa said.
The transaction is expected to contribute $1.6 billion in revenue to Alcoa’s aerospace segment by 2016 and generate $100 million in cost savings five years after the acquisition is completed.
Alcoa chairman and CEO Klaus Kleinfeld called the deal “a major milestone in Alcoa’s transformation.”
“It will significantly expand our market leadership and growth potential,” Mr. Kleinfeld said in a statement. “Firth Rixson increases the earnings power and broadens the market reach of our high-value aerospace portfolio, and will deliver compelling and sustainable value for customers and shareholders.”
Firth Rixson’s revenue is expected to grow from $1 billion in 2013 to $1.6 billion over the next three years and will grow at more than double the pace of the global aerospace market through 2019, Alcoa said. About 70 percent of that growth is backed by long-term contracts.
Alcoa shares rose 39 cents Thursday to close at $14.94. They are up 41 percent this year.
Moody’s Investors Service said the acquisition will have no impact on Alcoa’s credit rating.
Boards of both companies have approved the transaction. Alcoa expects to receive regulatory approvals and complete the purchase by the end of this year.
Len Boselovic: 412-263-1941 or email@example.com