The whole world wants titanium, named for the Titans of Greek mythology. On
Friday, Portland-based Precision Castparts Corp. bet $2.9 billion on the
stuff, announcing it would buy Titanium Metals Corp., the nation's largest
independent manufacturer of the strong, lightweight metal.
Precision makes parts for the Boeing 787 and other aircraft that use an ever-increasing amount of titanium, a substance as robust as steel but half as heavy. The company has agreed to buy Titanium Metals, or Timet, for $16.50 a share, more than 40 percent above the Dallas company's pre-deal trading price.
By far the lesser known of the two Oregon-based Fortune 500 companies (the other one named for a swoosh-bearing Greek goddess), Precision has been on a buying tear. But this acquisition is by far the largest, as Precision, with $7.2 billion in annual sales, swallows a multinational manufacturer with revenues of $1 billion.
Analysts praised the deal, saying the price appeared reasonable for a company that can round out Precision's abilities. The market liked it, too. Precision shares jumped 4 percent in after-hours trading on the New York Stock Exchange, reaching $180 at one point.
"Timet will provide us with the titanium capability that has always been a key missing piece of our overall product portfolio," said Mark Donegan, Precision chairman and chief executive officer, in a news release. "The potential for value creation is vast."
Precision, with more than 23,000 employees worldwide, makes complex metal components for the aerospace, energy and defense industries, as well as fasteners, pipe and castings. The company already makes jet engine parts using titanium, an exceptionally difficult metal to cast.
But Timet, with about 2,750 workers, will make Precision into a world leader in titanium manufacturing almost overnight, given the two companies' longstanding collaboration. The companies expect Precision's tender offer to be completed by the end of December, with the acquisition immediately accretive to earnings.
J.B. Groh, an analyst at D.A. Davidson in Lake Oswego, said the deal appeared favorable for Precision, given the ever-increasing use of titanium in aircraft such as the Boeing 787 and Airbus A350.
"It looks like they're paying a fair price for a good operator that fits strategically very nicely," Groh said. "There are probably going to be some pretty meaningful synergies."
Ken Herbert, an Imperial Capital analyst in San Francisco, also endorsed the deal.
"It looks expensive, but look what they did with Special Metals six years ago," Herbert said. "It's got to make you optimistic there's value here they're going to extract."
Herbert referred to Precision's $540 million purchase in 2006 of Special Metals, a West Virginia nickel-based alloy producer. Precision went on to streamline its nickel supply chain, cutting costs.
Titanium Metals makes products ranging from ingot and slab to forging billet and mill forms. It has plants in California, Nevada, Ohio, Pennsylvania, England, Wales and France. Last year, more than 15 percent of its sales went to Precision.
Precision, with local plants in Milwaukie and Southeast Portland, operates across the United States and in Europe, Asia, Australia and Brazil. The company says that almost every aircraft in the sky flies with parts it made. Big customers include Airbus, Boeing, GE and Rolls-Royce.
Entities controlled by Texas billionaire Harold Simmons control 45 percent of Titanium Metals' shares, Bloomberg News reported. Those shares shot up 42 percent, almost reaching the $16.50 tender price, in after-hours trading Friday on the New York exchange.
Precision has secured a $3 billion bridge loan for the acquisition, which will be funded by cash, commercial paper, bank debt and the sale of notes and bonds. The sale is not conditioned on Precision getting financing.
Precision's buying spree has emphasized aircraft parts manufacturers. But last month, the company said it would buy Texas Honing Inc., which offers pipe-processing services for oil and gas drilling.
In July, Precision said it had agreed to buy McSwain Manufacturing, some operations from Heroux-Devtek Inc. and airplane-parts maker Klune Industries. In May, Precision said it would buy Dickson Testing Co., which tests aircraft parts, and Aerocraft Heat Treating Co.
That followed an announcement the same month that it would buy Centra Industries, a Canadian aerostructures manufacturer. In March, Precision announced plans to buy RathGibson, a tubing and pipe manufacturer.
Distributed by MCT Information Services
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