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American aluminum giant Alcoa Inc. (NYSE:AA) has agreed to acquire the UK-based world leader in aerospace jet engine component manufacturer, Firth Rixson for $2.85 billion in cash and stock deal as part of Alcoa’s drive to change its business model.
Firth Rixson (FR), based in Sheffield, has the reputation of operating in nearly eight sectors in five countries and is considered to be the leading global provider of high technology products to the airline industry. FR is the leading provider of seamless rolled rings, closed and open die forgings and other products supplying to nearly 40 countries worldwide.
As per the deal, Alcoa Inc. will pay $2.35 billion in cash to purchase FR, combined with $500 million in stock and an additional 150 million in potential earn-outs. Alcoa Inc. entered into an agreement with Oak Hill Capital partner’s owner of Firth Rixson to acquire the British conglomerate in a cash-and-stock deal. Oak hill capital partner is a private-equity firm based in New York with more than $8 billion capital commitments from an array of investors into the company.
Klaus Kleinfeld, Chairman and Chief Executive Officer said, “The acquisition of Firth Rixson is a major milestone in Alcoa’s transformation.” He further said “this transaction will bring together some of the greatest innovations in jet engines component technology, it will significantly expand our market leadership and growth potential.
According to Alcoa’s statement, this transaction brings a variety of notable benefits to the company, where FR revenues are expected to increase by 60 percent during the upcoming three years, reaching as high as $1.6 billion from the current $1 billion. It is expected to contribute $350 million to EBITDA in 2016. Alcoa is also expecting high synergies in terms of cost-saving reaching $100 million five years from now.
Total sales are expected to grow by 12 percent, and are expected to contribute 20 percent to Alcoa’s annual revenue from aerospace sector. Alcoa Inc. is projecting an annual compounded growth rate of 7 percent in commercial jet business globally and is optimistic about its order book to be at current prices for the next 9 years.
Alcoa Inc. is currently trading around $14-$15 per share at the NYSE, with a market capitalization of 17.46 billion is hoping to capitalize the robust aerospace sector and this acquisition remains key driver for the company’s growth in aerospace industry in future. Alcoa’s competitors include Chinalco (ACH), ArcelorMittal (MT) and Rio Tinto plc. (RIO), among others.
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