DBRS Comments on Alcoa Proposed Acquisition of RTI International Metals

DBRS Limited (DBRS) today notes Alcoa Inc.’s (Alcoa or the Company), rated BBB with a Negative trend, signing of a definitive agreement to acquire RTI International Metals, Inc. (RTI), a global supplier of titanium and specialty metal products and services for the commercial aerospace, defense, energy and medical device markets in a stock-for-stock transaction with an enterprise value of $1.5 billion. If Alcoa’s acquisition of RTI proceeds as indicated, RTI shareholders will receive 2.8315 Alcoa shares for each RTI share, representing a value of $41 per RTI share based on Alcoa’s closing price on March 6, 2015. As part of the proposed acquisition, Alcoa will acquire $330 million of RTI cash on hand and up to $517 million in RTI’s convertible notes. DBRS views the proposed acquisition as a beneficial addition to Alcoa’s existing light-weight, technologically sophisticated, titanium-oriented aerospace and defense businesses, with good growth prospects and the potential to enhance the Company’s credit metrics over the mid-to-longer term, but if completed as expected, the acquisition is not expected to have an immediate impact on DBRS’s Alcoa ratings.

The acquisition will expand Alcoa’s range of titanium offerings and add advanced technologies and materials, enhancing the Company’s position as an industrial innovator and provider of value-added products. About 80% of RTI’s $794 million of revenues in 2014 were from the aerospace and defense industries, with the balance mainly split between other markets, including energy and medical devices. Alcoa expects the acquisition of RTI will contribute $1.2 billion in added revenues in 2019, including net synergies of about $100 million and at an EBITDA margin of 25%, up from RTI’s 2014 EBITDA of about $117 million and EBITDA margin of 14.5%.

The proposed acquisition of RTI by Alcoa has been approved by the boards of directors of both companies, but remains subject to customary conditions, receipt of regulatory approvals and RTI shareholder approval. Alcoa and RTI expect to obtain all required regulatory clearances and RTI shareholder approval in order to close the transaction in three to six months.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are Rating Companies in the Mining Industry (primary) and Rating Companies in the Industrial Products Industry (secondary), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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