Cast aluminum ‘pigs,’ each weighing 1,500-pounds, are stacked for shipment at the Alcoa plant in Rockdale, Texas. (Jack Plunkett/Getty)
Alcoa Inc. said on Thursday that it would acquire jet engine component producer Firth Rixson in a $2.85 billion deal expected to enhance the company’s aerospace production.
The terms of the transaction call for the New York-based Alcoa to purchase Firth Rixson from its private equity owner, Oak Hill Capital Partners, for $2.35 billion in cash and $500 million in stock. An additional $150 million could be paid out by 2020 if Firth Rixson achieves certain performance targets.
Financing for the deal will come from a bridge facility from Morgan Stanley, as well as an issuance of debt and equity-content securities. The transaction has been approved by the boards of directors from both companies, but remains subject to regulatory approvals. Alcoa said it expects to obtain the necessary clearances and close by the end of the year.
Alcoa sought legal counsel from Wachtell, Lipton, Rosen & Katz and Crowell & Moring on the deal, while Firth Rixson turned to Paul, Weiss, Rifkind, Wharton & Garrison for advice.
Alcoa, a lightweight metals engineering and manufacturing company, is traditionally known for being one of the world’s largest aluminum producers. But most of the company’s revenue comes from value-added products, with aerospace products serving as the biggest contributor. The business brought in 17 percent of Alcoa’s total revenue last year, or about $4 billion.
In light of its bid to expand its aerospace sector, Alcoa’s decision to team up with U.K.-based Firth Rixson is no accident. Firth Rixson earned three-quarters of its $1 billion in revenue last year from aerospace products, with the majority of its revenue coming from seamless jet engine rings. Firth Rixson also produces disks and shafts for turbines and compressors, among other products.
By acquiring Firth Rixson, Alcoa said it expects to grow its aerospace sector by 20 percent annually through expanded product offerings, in addition to capitalizing on an expected compounded annual growth rate of 7 percent in commercial jets for the next five years.
The company said the deal would allow it to become a leader in jet engine segments. “The acquisition of Firth Rixson is a major milestone in Alcoa’s transformation,” said Klaus Kleinfeld, Alcoa chairman and chief executive officer. “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 tapped Wachtell, Lipton, Rosen & Katz and Crowell & Moring on the Firth Rixson deal. Wachtell’s team was led by New York-based corporate partners Karessa Cain and Martin Lipton, and also includes executive compensation and benefits partner David Kahan, litigation partner Martin Arms, restructuring and finance partner Gregory Pessin, and tax partners Deborah Paul and T. Eiko Stange. Associates Erica Bonnett, Tijana Dvornic, Sara Lewis, Michael Sabbah, Austin Witt and Peter Zuckerman were also involved.
Wachtell represented Alcoa when it partnered with Chinalco to buy 12 percent of mining company Rio Tinto PLC in 2008 in a transaction valued at $14 billion. The following year, Alcoa said it was selling its stake to Chinalco for $1 billion.
Crowell provided antitrust and competition advice for Alcoa, with a team headed by antitrust partners Werner Berg and Shawn Johnson. The firm represented Alcoa in its 2010 acquisition of privately held window and door maker Traco. The terms of that deal were not announced.
Crowell has a long history in handling legal matters for the coal and mining industry. The firm was hit with an ethics complaint in 2011 over a client memo, where it was accused of soliciting business from the mining industry by misrepresenting Appalachian people, but was cleared of wrongdoing last year.
For its part, Firth Rixson turned to a Paul, Weiss, Rifkind, Wharton & Garrison team made up of corporate partners David Lakhdhir and Robert Schumer, employee benefits partner Robert Fleder, litigation partner Daniel Beller and tax partner David Sicular. Associates Brian Lavin and Caitlin O’Brien also worked on the deal.
The firm said it represented Oak Hill Capital Partners in its $2 billion acquisition of Firth Rixson in 2007.
Weil, Gotshal & Manges counseled Alcoa’s financial adviser Morgan Stanley. Capital markets partner Matthew Bloch, environmental partner Annemargaret Connolly and counsel Matthew Morton, finance partners Morgan Bale and Danek Freeman, M&A parner Raymond Gietz and tax partner William Horton all worked on the deal team. Associates Brandon Cherry, Sarah Davis, Michael Esposito, Justin Lee, Jamie Lurie, Christine Paik (not currently admitted to practice), Rachel Trudeau and Heather Viets were also involved.