Alcoa to acquire RTI International Metals

Alcoa, with headquarters in Pittsburgh and New York City, has announced that it has signed a definitive agreement to acquire RTI International Metals Inc., Pittsburgh, a global supplier of titanium and specialty metal products and services for the commercial aerospace, defense, energy and medical device markets. Alcoa says it will purchase RTI in a stock-for-stock transaction with a value of $1.5 billion.

Alcoa says the purchase of RTI strengthens its aerospace portfolio by expanding its range of titanium offerings and advanced technologies and materials.

“Alcoa is accelerating its value-add growth engine by acquiring titanium leader RTI,” says Klaus Kleinfeld, Alcoa chairman and CEO. “We are combining two innovators in materials science and process technology, shifting Alcoa’s transformation into a higher gear. RTI expands our aerospace portfolio market reach and positions us to capture future growth to deliver compelling value for customers, shareholders and employees.”

Dawne Hickton, vice chair, president and CEO of RTI International Metals, says, “Innovation and scale are critical to winning in both the titanium and aerospace industries today, which is why this transaction is such a natural strategic fit for both RTI and Alcoa. We are pleased to have an agreement with Alcoa that delivers immediate value to our shareholders that appropriately reflects the strength of our business. Through this combination of forces, RTI will take its innovative technologies to the next level and deliver even more value-add titanium solutions to meet customer needs. We look forward to continuing to accelerate RTI’s success as a part of the Alcoa team.”

Under the terms of the agreement, Alcoa says it will acquire all outstanding shares of RTI in a stock-for-stock transaction. RTI shareholders will receive 2.8315 Alcoa shares for each RTI share, representing a value of $41 per RTI share based on Alcoa’s closing price March 6, 2015. The transaction has an enterprise value of $1.5 billion, including $330 million of RTI cash on hand and up to $517 million in RTI’s convertible notes, according to Alcoa.

Alcoa says the RTI acquisition will offer it financial benefits with net synergies of about $100 million in 2019, primarily driven by procurement and productivity improvements, leveraging Alcoa’s global shared services and driving profitable growth. The company says it expects RTI to contribute $1.2 billion in revenues in 2019, up from $794 million generated in 2014, with 65 percent of revenue supported by contracts over the next five years. Alcoa says it expects RTI to reach profitability of 25 percent EBITDA (earnings before interest, taxes, depreciation and amortization) margin in 2019, up from 14.5 percent in 2014.

Alcoa says this transaction is expected to enable it to capitalize on strong growth in the commercial aerospace sector. The company projects a compounded annual global aerospace market growth rate of 5 to 6 percent through 2019 and sees a current nine-year production order book for commercial jets at 2014 delivery rates.

RTI grows Alcoa’s pro forma 2014 annual aerospace revenues by 13 percent, up from $5 billion to $5.6 billion, according to Alcoa. RTI is expected to increase Alcoa’s 2014 pro forma aerospace revenues to 37 percent of value-add sales, up from 35 percent, the company adds. Alcoa’s aerospace business is the largest contributor to Alcoa’s value-add businesses.

Eighty percent of RTI’s revenues in 2014 were from the aerospace and defense industries, with the balance mainly split between other markets, including energy and medical devices, complementing Alcoa’s growth markets, the company says.

The transaction, which has been approved by the boards of directors of both companies, remains subject to customary conditions and receipt of regulatory approvals and RTI shareholder approval. Alcoa and RTI say they expect to obtain all required regulatory clearances and RTI shareholder approval to close the transaction in three to six months.