(Adds context on shift away from aluminum, detail from CEO
interview, share movement)
By Allison Martell
June 26 Aluminum group Alcoa Inc expanded
its aerospace business and took a step away from the light metal
on Thursday, announcing a $2.85 billion deal to buy a company
that makes jet engine parts, largely out of nickel-based alloys
Alcoa, whose shares rose more than 3 percent, said it would
buy parts maker Firth Rixson from private equity firm Oak Hill
Only about 20 percent of Alcoa's aerospace revenue came from
aluminum by the end of 2013. With Thursday's deal, the company
expects that figure to fall to 17 percent, while aerospace
accounts for a bigger share.
"When I think aluminum I still think Alcoa, but that does
not contradict the very fact that we are building a lightweight
metals innovation powerhouse," Chief Executive Officer Klaus
Kleinfeld told Reuters.
With operations around the world, Alcoa mines bauxite,
refines it into alumina, smelts alumina to produce aluminum, and
manufactures complex metal goods, from truck wheels to aircraft
fuselages. As massive oversupply weighs on the price of
less-processed aluminum, the company has been pushing to expand
its higher-margin aerospace and automotive businesses.
The push to improve fuel economy in the automotive and
aerospace industries has boosted aluminum and other light metals
like titanium. Alcoa and rival Novelis won a significant victory
in automotive earlier this year when Ford Motor Co
unveiled a new aluminum-intensive F-150 truck.
With roots in the 19th century steel industry of Sheffield,
England, Firth Rixson has operations in the United Kingdom,
United States, continental Europe and China.
While aerospace is the biggest part of its business, it also
has power generation, oil and gas, and mining segments. Asked
whether Alcoa would exit any of those smaller businesses,
Kleinfeld said it would not.
Alcoa said it had secured interim financing for the deal
from Morgan Stanley and would issue "a prudent
combination" of debt and equity-content securities.
It expects the takeover to raise its aerospace revenue by 20
percent, to some $4.8 billion a year. It sees no impact on
earnings in the first year, and gains in the second year.
The deal value includes $2.35 billion in cash and $500
million of stock. There may also be a payment of as much as
$150 million based on Firth Rixson's performance.
Alcoa's financial advisers were Greenhill & Co and
Morgan Stanley, and its legal adviser was Wachtell, Lipton,
Rosen & Katz. Firth Rixson was advised by Citigroup Inc
and Lazard Ltd, as well as law firm Paul, Weiss,
Rifkind, Wharton & Garrison.
Shares of Alcoa were up 3.4 percent at $15.04 in early
(Editing by Chizu Nomiyama and Lisa Von Ahn)