Alcoa to Buy U.K. Aerospace Parts Maker for $2.85 Billion

Jun 26, 2014 4:41 pm ET

(Updates with closing share price in 11th paragraph.)

June 26 (Bloomberg) -- Alcoa Inc., the largest U.S. aluminum producer, agreed to buy U.K. aerospace-components maker Firth Rixson Ltd. for about $2.85 billion in stock and cash as it expands further into downstream manufacturing.

Alcoa will pay $2.35 billion in cash and $500 million in stock for Firth Rixson, which is owned by private-equity firm Oak Hill Capital Partners LP, the New York-based aluminum company said today in a statement, confirming an earlier report from Bloomberg News.

Firth Rixson, which is based in Sheffield, makes seamless rolled rings for jet engines, made from nickel-based superalloys and titanium. Its products are also sold to the oil and gas industry and manufacturers of gas turbines.

Alcoa has been investing in its manufacturing operations while closing unprofitable smelters amid a global oversupply of raw aluminum. Alcoa is expanding a Virginia plant that makes components for jet engines and is spending $100 million to build a new engine-parts factory in Indiana. Later this year it will begin production at a new $90 million aerospace-alloys plant, also in Indiana.

“Alcoa’s strong aerospace positioning is underappreciated,” Josh Sullivan, an analyst at Sterne Agee & Leach Inc. in New York, said in a note today. “We therefore view this transaction as both highly accretive as well as helping to raise Alcoa’s aerospace profile.”

Alcoa said Firth Rixson’s sales are expected to grow 60 percent in the next three years to $1.6 billion.

‘Sweet Spot’

Klaus Kleinfeld, Alcoa’s chairman and chief executive officer, said the deal will contribute to his company’s earnings in its first year.

“This flows right into the sweet spot of profitability,” he said in a telephone interview today.

A bridge facility from Morgan Stanley will help to fund the deal. Alcoa plans to issue a combination of debt and equity. The acquisition, which also includes a further $150 million potential “earn-out” payable by Alcoa, is expected to close by the end of this year.

In April, Alcoa forecast global aluminum demand will exceed output this year, predicting an end to the almost decade-long glut of the lightweight metal. Alcoa raised its 2014 forecast for growth in aluminum sales in the aerospace industry to as much as 9 percent, 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.

Shares Gain

While the price of aluminum has climbed 7.1 percent in the past 12 months, Alcoa’s shares have risen 93 percent. The stock gained 2.7 percent to $14.94 at the close in New York.

Firth Rixson was acquired by Oak Hill and Neuberger Berman Group LLC for 945 million pounds ($1.61 billion) in 2007. The sellers in that transaction were Lehman Brothers Holdings Inc. and Carlyle Group LP.

Alcoa’s financial advisers on the deal are Greenhill & Co. and Morgan Stanley while its legal adviser is Wachtell, Lipton, Rosen & Katz. Citigroup Inc. and Lazard Ltd. are financial advisers to Firth Rixson and Paul, Weiss, Rifkind, Wharton & Garrison LLP is its legal adviser.

--With assistance from Aaron Kirchfeld and Kristen Schweizer in London.