Alcoa signed a definitive agreement to buy RTI International Metals as part of its transformation effort to achieve growth and profitability. According to the aluminum giant, the acquisition would strengthen its value-add, multi-material aerospace portfolio.
RTI International Metals is a global supplier of titanium and specialty products and services for the commercial aerospace, defense, energy and medical device markets.
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Alcoa agreed to acquire all of the outstanding shares of RTI International Metals for an enterprise value of $1.5 billion in a stock-for-stock transaction. The amount includes $330 million of RTI cash on hand and as much as $517 million of the company’s convertible notes.
The shareholders of RTI International Metals will receive 2.8315 shares of Alcoa for every share of RTI they own. The deal represents a value of $41 per RTI share based on the closing price of Alcoa on March 6, 2015.
The aluminum giant said the acquisition would help expand its advanced technologies for greater innovation power. It would also broaden its multi-material product suite to meet the growing demand for titanium in the global aerospace sector, which is expected to grow as much as 6% annually.
According to Alcoa, the transaction is expected to increase its 2014 pro forma aerospace revenues by 13% to $5.6 billion. It is also expected to contribute $1.2 billion in revenues by 2019, an increase of $794 million from its revenue in 2014.
Alcoa expected that the profitability of RTI International Metals would reach 25% of EBITDA margin in 2019, up from 14.5% last year.
Alcoa and RTI International: a combination of two innovators
In a statement, Alcoa Chairman and CEO Klaus Kleinfeld said the aluminum giant is accelerating its value-add growth engine by purchasing RTI International Metals.
“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,” said Kleinfeld.
On the other hand, Dawne Hickton, vice chairman, president and CEO of RTI International Metals said, “Innovation and scale are critical to winning in both the titanium and aerospace industries today, which is why this transaction is such a natural strategic fit for both RTI and Alcoa.”
Hickton added that the deal delivers immediate value to the shareholders of the company.
The board of directors of both companies approved the transaction, which is still subject to customary closing conditions and regulatory approvals. The shareholders of RTI International Metals will still need to approve the deal.
Alcoa and RTI International Metals expect to complete the transaction over the next three to six months.