New York and London - Alcoa had agreed to buy UK aerospace components maker Firth Rixson for $2.85 billion (R30bn) in stock and cash as the largest US aluminium producer expanded into downstream manufacturing, it said yesterday.
Alcoa will pay $2.35bn in cash and $500 million in stock for Firth Rixson, which is owned by private equity firm Oak Hill Capital Partners.
A bridge facility from Morgan Stanley will help to fund the deal. Alcoa plans to issue a combination of debt and equity. The deal is expected to close by the end of this year.
Alcoa’s downstream businesses serve aerospace customers as well as car makers and the construction industry. The company has been investing in those operations while closing unprofitable smelters amid a global oversupply of raw aluminium.
Firth Rixson makes seamless rolled rings for jet engines from nickel-based superalloys and titanium. Its products are sold to the oil industry and makers of gas turbines.
Alcoa said Firth Rixson’s sales were expected to grow 60 percent in the next three years to $1.6bn.
Klaus Kleinfeld, Alcoa’s chairman and chief executive, said the deal “flows right into the sweet spot” of his company’s profitability.
The acquisition includes a further $150m potential “earn-out” payable by Alcoa.
In April, Alcoa forecast global aluminium demand would exceed output this year, predicting an end to the almost decade-long glut of the lightweight metal.
Alcoa raised its forecast for growth in aluminium sales in the aerospace industry to as much as 9 percent this year, citing demand for large commercial aircraft and regional jets.
It kept its projection for the increase in total global demand for the metal at 7 percent.
While the aluminium price added 7 percent in the 12 months to Wednesday, Alcoa’s shares had risen 88 percent.
Firth Rixson was acquired by Oak Hill and Neuberger Berman for £945m (R17bn) in 2007. The sellers in that transaction were Lehman Brothers and Carlyle Group.
Alcoa’s financial advisers on the deal are Greenhill and Morgan Stanley while its legal adviser is Wachtell, Lipton, Rosen & Katz. Firth Rixson’s financial advisers are Citigroup and Lazard and Paul, Weiss, Rifkind, Wharton & Garrison is its legal adviser. – Bloomberg