Acquisition makes Alcoa a bigger player in aerospace industry
March 9, 2015 11:59 PM
Alcoa Chairman and CEO Klaus Kleinfeld said today’s deal to acquire RTI International Metals Inc. for about $1.26 billion is “shifting Alcoa’s transformation into a higher gear.”
Jason Cohn/Bloomberg News
Alcoa expects the aerospace market will grow 5 to 6 percent annually through 2019.
By Len Boselovic / Pittsburgh Post-Gazette
Shares of RTI International Metals jumped Monday after aluminum producer Alcoa agreed to acquire the Moon-based titanium producer, a $1.5 billion transaction that ramps up Alcoa’s efforts to diversify its higher-margin offerings in the fast-growing aerospace market.
The purchase will provide Alcoa with a stronger foothold in a metal that aerospace producers are relying on for more demanding applications. It also gets the aluminum producer into the medical device and other markets where titanium is used.
RTI shareholders will receive 2.83 shares of Alcoa for each of their shares, valuing the titanium producer at $38.79 per share based on Alcoa’s closing stock price Monday.
The $1.5 billion price tag also includes up to $517 million of RTI debt and $330 million in cash the titanium producer is holding.
RTI has about 2,600 employees, including about 70 at its Moon headquarters. Its production facilities include plants in Niles and Canton, Ohio.
“Titanium has become the fastest-growing aerospace metal,” Alcoa chairman and CEO Klaus Kleinfeld told analysts during a conference call Monday. “We’re capitalizing on a very attractive growing end market.”
Mr. Kleinfeld said the transaction also will give Alcoa access to some promising technologies. They include 3-D printing, which allows manufacturers to accelerate the development of prototypes and to print complex, low-volume parts made of titanium and other specialty metals. Last year, RTI acquired Directed Manufacturing, an Austin, Texas, company that uses 3-D printing to make metal and plastic parts for the aerospace and other industries.
“Alcoa will leverage these technologies more broadly and will have them immediately without having to work around patent and know-how issues,” said John Tumazos, a Holmdel, N.J., metals industry analyst.
He said linking up with Alcoa makes sense for RTI, whose major competitors, including Pittsburgh-based Allegheny Technologies, are much larger.
Mr. Tumazos said Allegheny Technologies would have made a more attractive acquisition for Alcoa because it has a larger titanium business, broader capabilities in more businesses, and extra capacity for processing metals at its new plant in Brackenridge.
RTI furthers Alcoa’s strategy of moving away from its commodity aluminum business into higher-margin businesses, said Sterne Agee analyst John Sullivan. He cited Alcoa’s $2.85 billion acquisition of Firth Rixson, a United Kingdom jet engine component producer, as well as its purchase of TITAL, a German-based manufacturer of titanium and aluminum castings used in aircraft engines and airframes. The transaction was completed last week. Terms were not disclosed.
“Klaus Kleinfeld and company continue to execute on transitioning the company toward higher value products,” Mr. Sullivan said in a note to clients.
On Friday, the aluminum producer said it would consider curtailing up to 14 percent of its aluminum smelting capacity in order to make the commodity business more cost competitive.
Alcoa expects the aerospace market will grow 5 to 6 percent annually through 2019. By that time, Alcoa projects RTI’s revenue will have grown from $794 million last year to $1.2 billion, and combining the two businesses will have created annual synergies of $100 million.
Shares of RTI finished Monday at $38, up $10.72. Alcoa slid 78 cents to close at $13.70.
If RTI terminates the merger agreement because it finds a more attractive offer, it would have to pay Alcoa a $50 million breakup fee, according to an RTI securities filing. Mr. Tumazos said a higher offer is unlikely because “the Alcoa offer is pretty generous.”
Alcoa expects the transaction to be completed within three to six months. The deal has been approved by the boards of both companies. It must be approved by RTI shareholders and regulators.