Photo by: Bloomberg
TORONTO (miningweekly.com) – Lightweight-metals engineering and manufacturing firm Alcoa on Thursday announced that it had agreed to buy jet engine parts manufacturer Firth Rixson from private equity firm Oak Hill Capital Partners for $2.85-billion in cash and stock.
US-based Alcoa billed the agreement as significantly accelerating its portfolio transformation, strategically building out its downstream manufacturing capabilities to generate increased revenues in the face of low primary-aluminium prices.
Firth Rixson is a global producer of seamless rolled jet engine rings, engineered from nickel-based superalloys and titanium, and is a significant supplier of jet engine forgings, expanding Alcoa’s presence into the full range of global aerospace engine forgings. It is also one of the world’s largest suppliers of vacuum-melted superalloys used to make aerospace, industrial gas turbine, oil and gas products and structural components for landing gear applications.
Under terms of the deal, Alcoa would buy Firth Rixson for $2.35-billion in cash, $500-million of stock and a potential $150-million earn-out.
The transaction is expected to enable Alcoa to capitalise on strong growth in the commercial aerospace sector. Alcoa foresaw a compounded yearly commercial jet growth rate of 7% through to 2019 and a current nine-year production order book at 2013 delivery rates.
The acquisition would be supported by a fully committed bridge facility from Morgan Stanley. Alcoa would issue a prudent combination of debt and equity-content securities, remaining committed to maintaining its investment-grade rating.
The transaction, which was expected to close before the end of the year, was not expected to add to the company’s earnings in the first year, after which it would start generating earnings exceeding the cost of the transaction.
Fitch Ratings also on Thursday confirmed that Alcoa's ratings and outlook were unaffected by the proposed deal, as the two combined businesses were complementary and possessed little product overlap.
Last month, Alcoa announced that it broke ground on its state-of-the-art, $100-million aerospace expansion in La Porte, Indiana where it will produce nickel-based superalloy jet engine parts.This was the second significant aerospace investment by Alcoa in Indiana in two years. In 2012, Alcoa announced the construction of a $90-million greenfield aluminium lithium facility at its Lafayette operations.