Alcoa Inc. agreed to buy RTI International Metals Inc. for about $1.26 billion to expand its titanium and specialty-metals products business for the aerospace industry.
The all-stock transaction, which values Pittsburgh-based RTI at 50 percent more than it was trading at Friday, is the third aerospace-related deal announced by Alcoa in less than nine months. The largest U.S. aluminum maker is focusing on supplying components to jet-engine and aircraft makers, an area it sees as having big growth potential.
The global aerospace industry will grow as much as 10 percent this year, the New York-based company said in January, outpacing other aluminum-using sectors such as cars and construction. Buying RTI will increase Alcoa’s aerospace revenues by 13 percent, both companies said in a statement Monday.
The deal, which appears expensive, “fits in with Alcoa’s ongoing transformation toward a downstream metal services/processing company, and away from the more volatile (and lower margin) upstream primary aluminum company,” David Gagliano, an analyst at BMO Capital Markets in New York, wrote in a note. Alcoa is paying 13 times RTI’s earnings before interest, taxes, depreciation and amortization last year, compared with the 7.7 multiple its own stock trades at.
The takeover comes less than four months after Alcoa completed the $2.85 billion purchase of Firth Rixson Ltd., a U.K. producer of specialty components used in jet engines. Alcoa also bought German aircraft-component maker Tital GmbH on March 3 for an undisclosed price.
The RTI acquisition will be “mildly dilutive,” in its first year, beginning to add to earnings in its second year, Chief Financial Officer Bill Oplinger said on a conference call. Alcoa will assume $400 million of RTI’s debt after some of the target company’s bonds convert to equity. The deal is expected to close in three to six months and RTI will pay Alcoa $50 million if it’s terminated.
While Alcoa’s downstream business is expanding, its production of primary aluminum has been declining. The company said last week it put 14 percent of its global smelting capacity under review for closing or divestment amid weak prices and a relentless increase in production from China. It has curtailed, closed or sold 1.3 million tons, or 31 percent, of its smelting capacity since 2007.
Investors will receive 2.8315 Alcoa shares for each RTI share, representing a value of $41 per RTI share based on Alcoa’s March 6 closing price. It’s a 50 percent premium to that closing price and an enterprise value of $1.5 billion including debt.
Alcoa dropped 5.4 percent to $13.70 at the close in New York, while RTI rose 39 percent to $38.
Alcoa’s financial advisers are Greenhill & Co. and Morgan Stanley, and its legal counsel is Wachtell, Lipton, Rosen & Katz. RTI’s financial adviser is Barclays Plc and Jones Day is its legal counsel.