US aluminium giant Alcoa is expanding its aerospace business with the $2.85 billion cash-and-stock acquisition of Firth Rixson, a leading British manufacturer of jet engine components. Alcoa said Thursday it had signed a definitive agreement to buy Firth Rixson from Oak Hill Capital Partners, a US-based private equity firm.
Alcoa will pay $2.35 billion in cash and $500 million in common stock for Firth Rixson. It will add $150 million to the deal if the company meets certain performance targets. The Sheffield, England-based company has operations in Britain, the US, Europe and Asia. "The acquisition of Firth Rixson is a major milestone in Alcoa's transformation," said Klaus Kleinfeld, Alcoa chairman and chief executive, in a statement.
"This transaction will bring together some of the greatest innovators in jet engine component technology; it will significantly expand our market leadership and growth potential." Alcoa said it expected the acquisition to contribute $1.6 billion in revenue and $350 million in operating profit in 2016. Investors in Alcoa welcomed the news, pushing Alcoa shares up 2.4 percent to $14.90 in late-morning trade.
Firth Rixson had $1 billion in revenue in 2013, about 75 percent of it from the aerospace industry. Alcoa said the British firm's sales were expected to grow 12 percent annually through 2019, a pace more than double the expanding global aerospace market. The takeover was expected to reap cost savings above $100 million annually by its fifth year. The deal has been approved by the boards of directors of both companies and is awaiting regulatory approval. The transaction is expected to close by the end of the year.
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