(Reuters) - Kennametal Inc (KMT.N) said it would buy Allegheny Technologies Inc’s (ATI.N) tungsten materials business for $605 million to boost supply of the raw material used to make its metal-working tools, increasing its exposure to aerospace and energy markets.
Allegheny’s tungsten material business, ATI Tungsten Materials, makes tungsten powder, tungsten heavy alloys, tungsten carbide materials and carbide-cutting tools.
“It is a very core strategic deal for (Kennametal) that enhances its tungsten recycling capability,” Longbow Research analyst Eli Lustgarten told Reuters.
Kennametal said the acquired business, which recovers tungsten from scrap, would boost raw material sourcing and accelerate plans to develop an advanced tungsten carbide recycling facility in the United States.
“We expect this acquisition to reduce our raw material costs while securing our supply of tungsten,” Chief Financial Officer Frank Simpkins said on a conference call with analysts.
Kennametal’s metal-cutting tools, tooling supplies and other products are used for making products such as airframes, and in mining operations and oil wells.
The deal with Allegheny also aligns with Kennametal’s acquisition of Comercializadora Emura S.R.L. that closed in August, the company said.
La Paz, Bolivia-based Emura processes and sells tungsten ore material.
Kennametal’s shares were up 1.2 percent at $46.54 in afternoon trading on the New York Stock Exchange, while those of Allegheny Technologies were up nearly 9 percent at $31.12.
Allegheny said the sale would help it concentrate on its high-performance metals and flat-rolled products businesses.
Kennametal said the acquisition would also strengthen its tooling business in the areas of metal cutting and metal finishing technologies, adding brands such as Stellram Products and Garryson Products.
The company said it expects the acquisition to reduce planned capital expenditure by about $30 million-$35 million.
Kennametal said it plans to fund the acquisition through a combination of cash and credit. The deal is expected to be neutral to earnings for fiscal 2014 ending June.
“The acquisition will be accretive to earnings per share within a year,” Chief Executive Carlos Cardoso said on the call.
J.P. Morgan Securities LLC advised Kennametal. Goldman, Sachs & Co was the financial adviser to Allegheny, while K&L Gates LLP was the legal counsel.
Reporting By Maria Ajit Thomas in Bangalore; Editing by Ted Kerr, Kirti Pandey and Sriraj Kalluvila