Kennametal To Buy Allegheny Tech.'s Tungsten Materials Business For $605 Mln

(RTTNews) - Kennametal Inc. (KMT) has agreed to acquire the Tungsten Materials Business of Allegheny Technologies Inc. (ATI) for $605 million. As a result of this agreement, ATI would report the financial results of the tungsten materials business in discontinued operations pending completion of the transaction.

ATI's Tungsten Materials Business, with around $340 million in annual sales, is a leading producer of tungsten metallurgical powders, as well as tooling technologies and components. This business has nearly 1,175 employees across 14 operating facilities worldwide and comprises two divisions such as ATI Firth Sterling and ATI Stellram.

The firm expects to capitalize on the material technology capabilities, engineered components and tooling products of ATI's Tungsten Materials Business to expand its presence in the aerospace and energy markets. Moreover, this purchase would further augment Kennametal's tooling portfolio in the areas of metal cutting and metal finishing technologies, via. brands like Stellram Products, Garryson Products and Landis Products. The acquisition may generate significant synergies, and the company forecasts potential annual run-rate cost synergies ranging from $30 million to $40 million, which it anticipates would be realized via productivity improvements, operational efficiencies and raw-material cost benefits.

The transaction is structured as both an asset and stock purchase with Kennametal benefiting from the "step-up" in the tax basis of the purchased assets and the resulting tax deduction. The company estimates the cash tax benefit of the step-up to have a net present value of about $60 million - $70 million. Kennametal intends to fund the acquisition via. a combination of cash on hand and available borrowings under its existing revolving credit facility. The company expects the acquisition to be neutral to earnings for the remainder of its fiscal 2014. Adjusted for the estimated annual run-rate synergies and tax asset, the implied acquisition multiple represents about 7.2x EBITDA based on historical earnings.

Approved by both the companies' boards, the transaction may close during the fourth quarter of 2013. J.P. Morgan Securities LLC acted as exclusive financial advisor to Kennametal on the transaction.