Transaction expands Alcoa’s leadership in jet engine components
- $2.85 billion acquisition, $2.35 billion in cash, $500 million common stock; additional $150 million potential earn-out
- Significantly accelerates Alcoa’s portfolio transformation, builds out value-add business, grows innovation capabilities and broadens multi-material product mix
- Increases Alcoa’s 2013 pro forma aerospace revenue by 20 percent to $4.8 billion and expands product suite in growing jet engine segment
- Expected to contribute incremental $1.6 billion revenues and $350 million EBITDA in 2016
- Firth Rixson’s sales are expected to grow through 2019 at a rate more than double the global aerospace market
- Expected annual synergy cost savings of more than $100 million by year five
Alcoa (NYSE:AA) today announced it is significantly accelerating its
portfolio transformation. The Company has signed a definitive agreement
to acquire Firth Rixson, a global leader in aerospace jet engine
components, from Oak Hill Capital Partners, for $2.85 billion in cash
and stock. Under the terms of the deal, Alcoa will purchase Firth Rixson
for $2.35 billion in cash, plus $500 million of Company stock and an
additional $150 million potential earn-out.
The acquisition further strengthens Alcoa’s robust aerospace business.
It positions the Company to capture additional aerospace growth with a
broader range of high-growth, value-add jet engine components. The
acquisition is strategically aligned with the Company’s objective to
continue to build its value-add businesses.
“The acquisition of Firth Rixson is a major milestone in Alcoa’s
transformation,” said Klaus Kleinfeld, Alcoa Chairman and Chief
Executive Officer. “This transaction will bring together some of the
greatest innovators in jet engine component technology; it will
significantly expand our market leadership and growth potential. Firth
Rixson increases the earnings power and broadens the market reach of our
high-value aerospace portfolio and will deliver compelling and
sustainable value for customers and shareholders.”
“We at Oak Hill Capital have worked closely with the Firth Rixson team,
led by CEO David Mortimer, to create long-term strategic value,” said
Denis J. Nayden, Managing Partner of Oak Hill Capital. “By investing in
new capabilities and technology in partnership with the leading
aerospace engine customers, we strengthened Firth Rixson’s global
leadership and built a business with strong growth, a large backlog of
booked business and significant further potential. We are excited about
the equity we are receiving in Alcoa and confident that the combination
of Alcoa and Firth Rixson will achieve great success as a strategic
supplier to the world’s best aerospace companies.”
Transaction Benefits
The Firth Rixson acquisition offers significant benefits to Alcoa. Firth
Rixson’s revenues are expected to grow 60 percent over the next three
years, from $1 billion in 2013 to $1.6 billion, and contribute $350
million EBITDA in 2016. Firth Rixson’s sales are expected to grow 12
percent annually through 2019, a rate more than double the expanding
global aerospace market. Approximately 70 percent of Firth Rixson’s
growth is secured by long-term agreements.
Firth Rixson grows Alcoa’s annual aerospace revenues by 20 percent, from
$4 billion in 2013 to $4.8 billion on a pro forma basis and is expected
to increase the contribution of the high-growth aerospace segment to
Alcoa’s value-add revenues from 30 percent to nearly 35 percent. Alcoa’s
aerospace business is the largest contributor to Alcoa’s value-add
businesses, which in 2013 comprised 57 percent of overall revenues and
80 percent of segment profits.
While the two businesses are highly complementary with limited product
overlap, the Company also expects to realize significant synergy cost
savings, primarily driven by purchasing and productivity improvements,
optimizing internal metal supply and leveraging Alcoa’s global shared
services. These cost savings are expected to reach more than $100
million annually by year five. The transaction is expected to be neutral
to earnings the first year and accretive thereafter and will generate a
return in excess of cost of capital.
Strategic Rationale
Firth Rixson has a strong portfolio of world-class assets that
complements and deepens Alcoa’s penetration of the growing aerospace
market. Firth Rixson has gained share in each successive generation of
engine platforms through its strong market position in rings and
significant investment in isothermal forging. Firth Rixson currently
holds the number one global position in seamless rolled jet engine
rings, engineered from nickel-based superalloys and titanium, and is a
major supplier of jet engine forgings, expanding Alcoa’s presence into
the full range of global aerospace engine forgings. It is also one of
the world’s leading suppliers of vacuum melted superalloys used to make
aerospace, industrial gas turbine, oil and gas products and structural
components for landing gear applications.
Through Firth Rixson, Alcoa enters into a highly specialized segment of
jet engine forgings that require isothermal forging
technology. Isothermally forged parts are increasingly required in jet
engines that use elevated turbine temperatures to maximize power output,
drive fuel efficiency and reduce emissions. Demand for large isothermal
aerospace engine disks is expected to triple in the next eight years
driven by strong aerospace build rates.
Firth Rixson recently entered this segment with the development of the
state-of-the art Savannah, Georgia facility, which includes a 19.5k ton
isothermal press and a 33k ton conventional forge press for other large
aerospace components.
Approximately 75 percent of Firth Rixson’s revenues in 2013 were from
the aerospace industry, with the balance split between other markets
such as industrial gas turbine, commercial transportation and oil and
gas, complementing Alcoa’s growth markets.
Capitalizing on Growing Commercial Jet Market
This transaction is expected to enable Alcoa to capitalize on strong
growth in the commercial aerospace sector. Alcoa projects a compounded
annual commercial jet growth rate of 7 percent through 2019 and
sees a current 9-year production order book at 2013 delivery rates.
Alcoa’s aerospace business holds the number one global position in
aluminum forgings and extrusions, jet engine airfoils and fastening
systems and is a leading supplier of structural castings made of
titanium, aluminum and nickel-based superalloys, produced by its
downstream business, Engineered Products and Solutions (EPS). Alcoa has
increased adjusted EBITDA margins of its EPS business from 9.2 percent
in 2003 to 21.5 percent in 2013. The Company also holds leading market
positions in aerospace aluminum sheet and plate produced by its
midstream business, Global Rolled Products.
Timing and Financing
The transaction, which has been approved by the Boards of Directors of
both companies, remains subject to customary conditions and receipt of
regulatory approvals. Alcoa expects to obtain all required regulatory
clearances and close the transaction by the end of 2014.
The acquisition will be supported by a fully committed bridge facility
from Morgan Stanley. Alcoa will subsequently issue a prudent combination
of debt and equity-content securities and remains committed to
maintaining its investment grade rating.
Greenhill and Morgan Stanley acted as financial advisors to Alcoa and
Wachtell, Lipton, Rosen & Katz acted as legal advisor. Citigroup and
Lazard acted as financial advisors to Firth Rixson and Paul, Weiss,
Rifkind, Wharton & Garrison acted as legal advisor.
Conference Call Information
Alcoa will host a conference call at 8:30 AM Eastern Daylight Time on
June 26, 2014 to discuss the transaction. The meeting will be webcast
via alcoa.com. Call information and related details are available at www.alcoa.com
under “Invest.” Presentation materials used during this meeting will be
available for viewing at 7:15 AM EDT at www.alcoa.com.
Additional resources: Go to www.alcoa.com/firthrixsonacquisition
for more information, photos and b-roll.
About Alcoa
A global leader in lightweight metals
engineering and manufacturing, Alcoa innovates multi-material solutions
that advance our world. Our technologies enhance transportation, from
automotive and commercial transport to air and space travel, and improve
industrial and consumer electronics products. We enable smart buildings,
sustainable food and beverage packaging, high-performance defense
vehicles across air, land and sea, deeper oil and gas drilling and more
efficient power generation. We pioneered the aluminum industry over 125
years ago, and today, our 60,000 people in 30 countries deliver
value-add products made of titanium, nickel and aluminum, and produce
best-in-class bauxite, alumina and primary aluminum products. For more
information, visit www.alcoa.com,
follow @Alcoa on Twitter at www.twitter.com/Alcoa
and follow us on Facebook at www.facebook.com/Alcoa.
About Firth Rixson
Headquartered in Sheffield, UK, Firth
Rixson provides rings, forgings and metal products to the aerospace
sector and other industries requiring highly engineered material
applications. It is the world’s largest supplier of seamless rings for
aero-engines and leads the way in conventionally and isothermally forged
engine disc technology. The company’s integrated extrusion and closed
die forging operation serves the jet engine, landing gear system, mining
and oilfield component markets, and its specialized cast and wrought
superalloy material operation supplies a multitude of high technology
markets. With 13 operating facilities in the US, UK, Europe and Asia,
the company supplies a best-in-class customer base in over 40 countries.
Firth Rixson (www.firthrixson.com)
is owned by US-based private equity firm Oak Hill Capital Partners (www.oakhillcapital.com).
About Oak Hill Capital Partners
Oak Hill Capital Partners is
a private equity firm with more than $8 billion of initial capital
commitments from leading entrepreneurs, endowments, foundations,
corporations, pension funds, and global financial institutions. Since
inception 28 years ago, the professionals at Oak Hill Capital and its
predecessors have invested in more than 70 significant private equity
transactions across broad segments of the U.S. and global economies. Oak
Hill Capital applies an industry-focused, theme-based approach to
investing in the following sectors: Consumer, Retail & Distribution;
Industrials; Media & Communications; and Services. Oak Hill Capital
works actively in partnership with management to implement strategic and
operational initiatives to create franchise value.
Forward-Looking Statements
Certain statements in this
release, including statements regarding the proposed acquisition by
Alcoa Inc. (“Alcoa” or “the Company”) of the Firth Rixson business, the
proposed financing of the transaction and potential earn-out payments,
Alcoa’s portfolio transformation, the combined company’s plans,
objectives, expectations and intentions, expected contribution to
revenues and adjusted EBITDA, leadership in the aerospace jet engine
components industry, and the expected size, scope and growth of the
combined company’s operations and the market in which it will operate,
expected synergies, the anticipated issuance of Company common stock in
the acquisition, as well as the expected timing, closing and benefits of
the transaction, may contain words such as “anticipates,” “estimates,”
“expects,” “forecasts,” “intends,” “outlook,” “plans,” “projects,”
“should,” “could,” “may,” “seeks,” “targets,” “will,” “believes,” or
other words of similar meaning that constitute forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements are based on the Company’s current
expectations, estimates, forecasts and projections about the proposed
transaction and the operating environment, economies and markets in
which the Company and Firth Rixson operate. These statements are subject
to important risks and uncertainties that are difficult to predict, and
the actual outcome may be materially different. These statements reflect
beliefs and assumptions that are based on the Company’s perception of
historical trends, current conditions and expected future developments,
as well as other factors management believes are appropriate in the
circumstances. In making these statements, the Company has made
assumptions with respect to: the ability of the Company and Firth Rixson
to achieve expected synergies and the timing of same; the ability of the
Company and Firth Rixson to predict and adapt to changing customer
requirements, demand, preferences and spending patterns; future capital
expenditures, including the amount and nature thereof; trends and
developments in the aerospace, metals engineering and manufacturing
sectors and other sectors of the economy which are related to these
sectors; business strategy and outlook; expansion and growth of business
and operations; credit risks; anticipated acquisitions; future results
being similar to historical results; expectations related to future
general economic and market conditions; and other matters. The Company’s
beliefs and assumptions are inherently subject to significant business,
economic, competitive and other uncertainties and contingencies
regarding future events and as such, are subject to change. The
Company’s beliefs and assumptions may prove to be inaccurate and
consequently the Company’s actual results could differ materially from
the expectations set out herein. Actual results or events could differ
materially from those contemplated in forward-looking statements as a
result of risks and uncertainties relating to the transaction and
financing thereof, including: (a) the risk that the businesses will not
be integrated successfully or such integration may be more difficult,
time-consuming or costly than expected, which could result in additional
demands on Alcoa’s resources, systems, procedures and controls,
disruption of its ongoing business and diversion of management’s
attention from other business concerns; (b) Alcoa’s increased levels of
indebtedness as a result of the proposed transaction, which could limit
Alcoa’s operating flexibility and opportunities; (c) Alcoa’s inability
to complete the anticipated financing as contemplated by the commitment
letter prior to the contractually required time for closing of the
proposed transaction or otherwise secure favorable terms for such
financing; (d) the possibility that certain assumptions with respect to
Firth Rixson or the proposed transaction could prove to be inaccurate;
(e) failure to receive, delays in the receipt of, or unacceptable or
burdensome conditions imposed in connection with, all required
regulatory approvals and the satisfaction of the closing conditions to
the proposed transaction; (f) the potential failure to retain key
employees of Alcoa or Firth Rixson as a result of the proposed
transaction or during integration of the businesses; (g) potential sales
of the Company common stock issued in the acquisition; (h) the loss of
customers, suppliers and other business relationships of Alcoa or Firth
Rixson as a result of the transaction; and (i) disruptions resulting
from the proposed transaction, making it more difficult to maintain
business relationships. Additionally, important factors that could cause
actual results to differ materially from those expressed or implied in
the forward-looking statements include the risk factors summarized in
Alcoa’s Form 10-K for the year ended December 31, 2013, Form 10-Q for
the quarter ended March 31, 2014, and other reports filed with the
Securities and Exchange Commission. Alcoa disclaims any obligation to
update publicly any forward-looking statements, whether in response to
new information, future events or otherwise, except as required by
applicable law. Nothing on our website is included or incorporated by
reference herein.
This release does not constitute an offer to sell or the solicitation
of an offer to buy any securities. The common shares of the Company will
only be issued pursuant to the terms of the definitive agreement.
Non-GAAP Financial Measures
Some of the information included
in this release is derived from Alcoa’s consolidated financial
information but is not presented in Alcoa’s financial statements
prepared in accordance with accounting principles generally accepted in
the United States of America (“GAAP”). Certain of these data are
considered “non-GAAP financial measures” under SEC rules. These non-GAAP
financial measures supplement our GAAP disclosures and should not be
considered an alternative to the GAAP measure. Reconciliations to the
most directly comparable GAAP financial measures and management’s
rationale for the use of the non-GAAP financial measures can be found in
the schedule to this release and on our website at www.alcoa.com
under the “Invest” section. Alcoa has not provided a reconciliation of
forward-looking non-GAAP financial measures to the directly comparable
GAAP financial measures, due primarily to variability and difficulty in
making accurate forecasts and projections, as not all of the information
necessary for a quantitative reconciliation is available to the Company
without unreasonable effort.
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Alcoa and subsidiaries Calculation of Financial Measures (unaudited) (dollars in millions) |
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Engineered Products and Solutions |
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Year ended |
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December 31, |
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Adjusted EBITDA Margin |
2003 |
2013 |
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| After-tax operating income (ATOI) | $ | 126 | $ | 726 | ||||||||
| Add: | ||||||||||||
| Depreciation, depletion, and amortization | 166 | 159 | ||||||||||
| Income taxes | 57 | 348 | ||||||||||
| Other | 11 | (2 | ) | |||||||||
| Adjusted EBITDA | $ | 360 | $ | 1,231 | ||||||||
| Third-party sales | $ | 3,905 | $ | 5,733 | ||||||||
| Adjusted EBITDA Margin | 9.2 | % | 21.5 | % | ||||||||
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Alcoa’s definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is net margin plus an add-back for depreciation, depletion, and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Research and development expenses; and Provision for depreciation, depletion, and amortization. The Other line in the table above includes gains/losses on asset sales and other nonoperating items. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because Adjusted EBITDA provides additional information with respect to Alcoa’s operating performance and the Company’s ability to meet its financial obligations. The Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies. |
Alcoa
Investor Contact:
Kelly Pasterick, 212-836-2674
Kelly.Pasterick@alcoa.com
or
Media Contact:
Monica Orbe, 212-836-2632
Monica.Orbe@alcoa.com