Alcoa To Buy Titanium Supplier RTI International Metals In $1.5 Bln Deal

(RTTNews) - Alcoa Inc. (AA), the largest U.S. aluminum producer, said Monday that it has agreed to acquire titanium supplier RTI International Metals, Inc. (RTI) for an enterprise value of $1.5 billion.

Alcoa expects the acquisition to strengthen its aerospace business. Shares of RTI International are gaining more than 41 percent in pre-market activity.

Pittsburgh, Pennsylvania-based RTI International is a supplier of advanced titanium and specialty metal products for the commercial aerospace, defense, energy and medical device markets. Titanium is the world's fastest growing aerospace metal.

Alcoa noted that the acquisition of RTI will expand its range of titanium offerings as well as add advanced technologies and materials to its aerospace portfolio. Alcoa's aerospace business is the largest contributor to the company's value-add businesses.

Klaus Kleinfeld, chairman and CEO of Alcoa said, "We are combining two innovators in materials science and process technology, shifting Alcoa's transformation into a higher gear. RTI expands our aerospace portfolio market reach and positions us to capture future growth to deliver compelling value for customers, shareholders and employees."

Under the terms of the stock-for-stock deal, RTI shareholders will receive 2.8315 Alcoa shares for each RTI share, representing a value of $41 per RTI share based on Alcoa's closing stock price of $14.48 on March 6, 2015. The offer price represents a 50 percent premium to RTI International's closing stock price of $27.28 on Friday.

The transaction has an enterprise value of $1.5 billion, including $330 million of RTI cash on hand and up to $517 million in RTI's convertible notes.

Alcoa expects the transaction to enable it to capitalize on strong growth in the commercial aerospace sector. Alcoa projects a compounded annual global aerospace market growth rate of 5 percent to 6 percent through 2019, and sees a current 9-year production order book for commercial jets at 2014 delivery rates.

Alcoa noted that the acquisition will offer it financial benefits with realized net synergies of about $100 million in 2019, primarily driven by procurement and productivity improvements.

Alcoa expects RTI to contribute $1.2 billion in revenues in 2019, up from $794 million generated in 2014, with 65 percent of revenues supported by contracts over the next five years. RTI is expected to reach profitability of 25 percent EBITDA margin in 2019, up from 14.5 percent in 2014.

Alcoa noted that RTI will grow its pro forma 2014 annual aerospace revenues by 13 percent, up from $5 billion to $5.6 billion. RTI is also expected to increase Alcoa's 2014 pro forma aerospace revenues to 37 percent of value-add sales, from 35 percent.

The transaction, approved by the boards of directors of both companies, remains subject to approval by RTI shareholders.

Greenhill & Co. and Morgan Stanley are acting as financial advisors to Alcoa, and Wachtell, Lipton, Rosen & Katz is serving as legal counsel. Barclays is acting as the sole financial advisor to RTI, and Jones Day is serving as legal counsel.

Alcoa has been recently expanding its aerospace business. In November 2014, Alcoa completed its $2.85 billion acquisition of jet engine component maker Firth Rixson.

Alcoa, in December, announced plans to further expand its global aerospace business through a definitive agreement to buy Germany-based TITAL. Additionally, Alcoa is doubling its jet engine coating technology capacity at its Whitehall, Michigan, U.S. facility.

Alcoa said Friday that over the next twelve months, it will review 500,000 metric tons of smelting capacity and 2.8 million metric tons of refining capacity for possible curtailment or divestiture. The company is continuing to aggressively transform its upstream portfolio to create a lower cost, globally competitive commodity business.

The company noted that the potential actions could affect 14 percent of its global smelting capacity and 16 percent of its global refining capacity.

AA closed Friday's trading at $14.48. In Monday's pre-market activity, the stock is down $0.53 or 3.66 percent to $13.95.

RTI closed Friday's trading at $27.28. In Monday's pre-market activity, the stock is up $11.20 or 41.06 percent to $38.48.