Precision Cast Parts to Acquire Nickel Alloy Specialist Special Metals Corp

Precision Castparts Corp. has entered into a definitive agreement to acquire Special Metals Corporation (SMC), a world leader in the production of high-performance nickel-based alloys and super alloys, for approximately $540 million in cash, including the repayment of SMC’s outstanding debt.

“The acquisition of Special Metals clearly meets all of our criteria for profitable growth and will be instrumental in driving Precision Castparts to new levels of performance” said Mark Donegan, chairman and chief executive officer of Precision Castparts Corp. (PCC). “First and foremost, it will provide us with an internal supply of nickel-based billet for our Forged Products operations, enabling us to manage our overall value stream more cost effectively from raw material to forged component. Other than producing some billet at our WASA facility in Australia, we are currently buying all of our billet on the outside. As the leading user of premium-grade nickel in the world, we can see significant top- and bottom-line benefits through increasing SMC’s volume, improving their yields, and decreasing the overall lead time to the marketplace.

“Synergies are also central to the SMC story,” Donegan continued. “Like Wyman-Gordon and SPS Technologies, SMC is an asset-intensive, process-driven, manufacturing business with many upside performance opportunities. We introduced PCC’s process control and productivity tools into Wyman-Gordon and SPS, driving significant bottom-line improvements throughout their operations. Those cost savings continue on a daily basis. With the same approach, the same tools, and the same disciplined focus, we fully expect the same type of integration success with SMC.

“Improved operational performance drives market penetration and sales increases,” Donegan said. “In addition, SMC will both strengthen and diversify our sales profile. Along with holding well-established positions in aerospace and power generation, SMC manufactures a comprehensive small-diameter pipe product line, which will enable us to continue our successful penetration of the seamless, extruded pipe market. The ability to offer these products with Wyman-Gordon’s large-diameter pipe will dramatically expand the breadth of our product line and create a much greater opportunity for us to bid on larger portions of projects. And, as with Wyman-Gordon and SPS, SMC opens up new opportunities for us in adjacent markets, such as the chemical, oil and gas, and pollution control industries, all of which present exciting growth potential. Overall, we view SMC as a key platform for organic growth, with future performance improvements comparable to those we’ve achieved and continue to achieve with our most recent acquisitions.”

The acquisition will be immediately accretive to earnings, before the impact of synergies. PCC expects to realize synergies of $10 million to $15 million in the first 12-15 months following closing of the transaction, with annual synergies reaching $30 million to $40 million in the out years, as well as significant cash generation opportunities as SMC is brought more in line with the working capital levels of PCC’s current metal-melting operations.

PCC will finance the acquisition with cash on hand and its existing credit facilities, which currently have undrawn capacity of approximately $550 million, while continuing to retain a strong balance sheet. As with the Wyman-Gordon and SPS acquisitions, PCC expects to realize significant cost reductions and synergies in SMC in the near term, along with strong cash generation from base operations, driving rapid repayment of acquisition debt and assuring a strong balance sheet and credit profile going forward.

The transaction has been approved by the boards of both companies, as well as by holders of more than 90 percent of the common stock of SMC, and is not subject to a financing contingency or approval by PCC’s shareholders. Subject to regulatory approvals, including Hart-Scott-Rodino, the transaction is anticipated to close in the third quarter of fiscal 2006.

Citigroup Global Markets served as financial advisor to PCC, Stoel Rives LLP served as legal counsel to PCC, and Jones Day served as legal advisor to SMC.

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