* Precision Castparts offers $16.50 a share
* Billionaire Harold Simmons' firm agrees to tender shares
* Acquisition to immediately add to earnings
* Agreement allows for rival bidder to make an offer
By A. Ananthalakshmi
Nov 9 Precision Castparts Corp offered
$2.9 billion to acquire Titanium Metals Corp, a leading
maker of alloys used in jet engines and controlled by Texas
billionaire Harold Simmons.
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, reduce costs and boost earnings.
"(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.
The company offered $16.50 per share for Titanium Metals, a
43 percent premium to the stock's closing price on Friday of
Simmons' Contran Corp and affiliates, which hold about 45
percent of Titanium Metals, have agreed to support the deal.
Since Precision Castparts was Titanium's biggest customer,
the cost reductions from the deal should be significant,
analysts said. It also gives the buyer much greater exposure to
titanium sales. And Precision Castparts has shown an ability to
integrate acquisitions smoothly.
"If PCP is able to extract the value out of this, then in
the long run, like you've seen with other acquisitions it's
made, I think you can argue it will end up being a good deal,"
Ken Herbert, an analyst with Imperial Capital said.
Precision Castparts, based in Portland, Ore., makes
castings, forgings, fasteners for aircraft and industrial gas
The acquisition follows a string of smaller deals, and
expands its portfolio to include titanium sponge and melted
products that are used in aircraft engine and airframe
Titanium Metals' is a maker of specialized alloys that are
widely used in jet engines. Its customers include Boeing,
Rolls Royce and United Technologies' Pratt &
"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
This is Precision Castparts' biggest acquisition since at
least 1996, according to Thomson Reuters data, and its seventh
deal so far this year. Through deals, the company has expanded
its product range and integrated vertically to include more
"That's been the history under Mark Donegan," said Peter
Arment, managing director and aerospace and defense analyst at
Sterne Agee in New York. "He's got a stellar track record" of
improving synergies and running businesses efficiently.
Precision Castparts said it expects the acquisition to
immediately add to its earnings.
"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 said it had lined up $3 billion in
bridge financing that it said may be used to complete the deal.
The company will begin a tender offer for Titanium shares on
Dallas-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. Simmons is a former banking examiner and
Titanium Metals shares traded at $16.49, above the offer
price, in after-hours trading, indicating that some investors
expect a higher bid. Precision Castparts shares rose 4.3 percent
after hours, from the close of $171.33.