Precision Castparts Corp (PCP.N) will pay $2.9 billion for Titanium Metals Corp TIE.N, controlled by Texas billionaire Harold Simmons, to expand its portfolio of casting products used in jet engines.
Precision Castparts, whose castings are used in every jet aircraft engine program in production or under development, said the acquisition of the titanium producer will help streamline its supply chain and input costs.
"(Titanium Metals) will provide us with the titanium capability that has always been a key missing piece of our overall product portfolio," Precision Castparts Chief Executive Mark Donegan said in a statement.
Simmons's Contran Corp and affiliates, who hold about 45 percent of Titanium Metals, have agreed to support the deal.
Precision Castparts makes castings, forgings, fastners for aircraft and industrial gas turbines. With the acquisition, it would expand its portfolio to include titanium sponge and melted products that are used in engine and airframe components.
Titanium Metals' customers include Boeing (BA.N), Rolls Royce (RR.L) and United Technologies' (UTX.N) Pratt & Whitney.
"It is a good acquisition," said Richard Whittington, an analyst with Drexel Hamilton. "Precision Castparts has a long history of handling supplier acquisitions very well and reducing costs."
This is Precision Castparts's biggest acquisition since at least 1996, according to Thomson Reuters data.
Precision Castparts, which expects the acquisition to immediately add to its earnings, offered $16.50 per share for Titanium Metals -- a 43 percent premium to the stock's Friday close.
"This transaction is truly a needle mover, a deal that offers Precision Castparts and our customers a wide range of opportunities going forward," CEO Donegan said.
Precision Castparts has secured a fully underwritten $3.0 billion bridge financing commitment that it said may be used to complete the deal.
It has made six acquisitions so far in 2012, excluding the proposed Titanium Metals bid.
Dallas, Texas-based Titanium Metals said the merger agreement allows it to actively solicit other takeover bids for a period of 45 days.
Morgan Stanley is acting as financial adviser to Titanium Metals.
Titanium Metals shares were above the offer price in after-market trading, indicating that some investors were expecting a higher bid. Precision Castparts shares rose 3 percent after closing at $171.33.
(Reporting by A. Ananthalakshmi and Aurindom Mukherjee in Bangalore; Editing by Maju Samuel)