Precision Castparts Corp. ( PCP ) 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 going forward.
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 elements.
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 of Precision.
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. ( TKR ) has a short-term Zacks Rank #4 (Sell) rating on the stock.