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Kennametal Inc.
KMT announced today that it has signed a definitive agreement to acquire the
Tungsten Materials Business of Allegheny Technologies Incorporated
ATI
for $605 million. ATI's Tungsten Materials Business, with approximately $340
million in annual sales, is a leading producer of tungsten metallurgical
powders, as well as tooling technologies and components. The business has
approximately 1,175 employees across 14 operating facilities globally and
consists of two market-leading divisions: ATI Firth Sterling and ATI
Stellram. The transaction has been approved by both companies' boards of
directors and is expected to close before the end of the calendar year,
subject to customary regulatory approvals and closing conditions.
"ATI's Tungsten Materials Business brings vital strategic assets that are an
excellent complement to Kennametal, especially given our common focus on
operational excellence and industry-leading material science," said Kennametal
Chairman, President and CEO Carlos Cardoso. "The addition of the expanded
material and tooling technologies of ATI's Tungsten Materials Business will
enable us to offer more to our customers around the world. We look forward to
building on our respective strengths to accelerate growth while generating
even greater value for our business and ultimately our shareholders."
This acquisition is aligned with Kennametal's growth strategy and positions
the company to further diversify its portfolio. The company expects to
capitalize on the material technology capabilities, engineered components and
world-class tooling products of ATI's Tungsten Materials Business to expand
its presence in the aerospace and energy markets.
The acquisition will advance Kennametal's core strategy that seeks to
diversify the company's tungsten sourcing to balance supplies, costs and
access to raw materials, including those produced from recycled products. The
ability of ATI's Tungsten Materials Business to produce critical materials
from recovered tooling and scrap will enhance Kennametal's material sourcing
and development capabilities to support the company's growth initiatives. The
acquisition accelerates Kennametal's previously announced plans to expand
capacity and develop an advanced tungsten carbide recycling facility in the
United States to serve global markets. The company also estimates that this
will reduce planned capital expenditures by approximately $30 million to $35
million and expects to achieve economy of scale six to eight years earlier
than prior projections.
In addition, the acquisition will further augment Kennametal's tooling
portfolio in the areas of metal cutting and metal finishing technologies,
through brands such as Stellram Products, Garryson Products and Landis
Products.
The acquisition is expected to generate significant synergies. The company
forecasts potential annual run-rate cost synergies ranging from $30 million to
$40 million, which it anticipates will be realized via productivity
improvements, operational efficiencies and raw-material cost benefits.
Kennametal also plans to pursue revenue synergies by extending the sales of
ATI's Tungsten Materials Business globally through its existing sales
channels, while building further on its strategic talent and technologies.
The transaction is structured as both an asset and stock purchase with
Kennametal benefiting from the "step-up" in the tax basis of the acquired
assets and the resulting tax deduction. Management estimates the cash tax
benefit of the step-up to have a net present value of approximately $60
million to $70 million.
Kennametal plans to fund the acquisition through a combination of cash on hand
and available borrowings under its existing revolving credit facility. The
company expects the acquisition to be neutral to earnings for the remainder of
its fiscal year 2014. Adjusted for the estimated annual run-rate synergies and
tax asset, the implied acquisition multiple represents approximately 7.2x
EBITDA based on historical earnings.
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