Precision Castparts Corp.
) recently announced that it has completed the acquisition of
Titanium Metals Corporation ("Timet") for $16.50 per share,
reflecting a total value of $2.9 billion. The offer price is at a
44% premium to the closing price of Timet on November 8, 2012
(the day the acquisition was announced).
The acquisition of Timet comes at an opportune time for
Precision as the aerospace segment is poised for continued growth
over the next several years with the achievement of production
rates for the next-generation airframes and engines. In addition,
record backlogs for commercial aircraft manufacturers reflect the
demand for global fleet replacement and expansion, which is
expected to drive significant titanium demand for the company
Further, Precision has followed the trend of manufacturing
aircraft jet engines, which is expected to increase the revenue
per engine for the company. As the design of new generation
aircraft engines has emphasized on increased thrust, higher fuel
efficiency and reduction of noise and exhaust emissions; engine
operating temperatures and pressures have increased.
These conditions require the use of engine parts made of
alloys that are able to withstand extreme operating conditions
and provide optimum strength-to-weight ratio. Titanium is a metal
with a lower melting temperature than stainless steel or
superalloys and is used in the hottest parts of the engine given
its considerable weight savings. Titanium is an exceptionally
difficult metal to cast as it continuously reacts with other
However, Precision has developed the advanced technology and
manufacturing processes to cast large, complex investment
castings in titanium alloys. Many new generation engines, which
are expected to be built through the next decade and beyond, will
make significantly greater use of Precision Castpart's products
than the previous engine designs. Therefore, the acquisition of
Timet is believed to be a perfect fit for the existing business
The intention to acquire Timet was announced by Precision on
November 8, 2012 and as per the terms of the agreement; the
latter had commenced an all cash tender offer to acquire 100% of
the outstanding common stock of Timet. Further it was also agreed
that the shares that will not be purchased in the tender offer
will be purchased in the second step of merger at the same price
as the tender offer.
The acquisition was immediately approved by the shareholders
of Precision, while Timet's board of directors established a
special committee for the evaluation of the deal. However, as per
the recommendation of this committee, the shareholders of Timet
also approved the merger.
Precision currently has a short term Zacks Rank #3 (Hold)
rating on the stock. One of the company's peer's
The Timken Co.
) has a short-term Zacks Rank #4 (Sell) rating on the stock.
PRECISION CASTP (PCP): Free Stock Analysis
TIMKEN CO (TKR): Free Stock Analysis Report
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