Arconic higher following report of private equity interest
Arconic has received takeover interest from private-equity firms, including Apollo Global, The Wall Street Journal reported Friday.
A deal for the aerospace parts maker, which currently has a market value of $8.3B, could be worth over $10B, but no buyout agreement is imminent, the report said.
The company, which also holds $6.4B in debt, has a tumultuous recent history, facing an activist investor campaign from Elliott Management after being separated from the aluminum business now known as Alcoa (AA) in 2016.
The campaign led to the resignation of former Arconic Chief Executive Officer Klaus Kleinfeld and an overhaul of the company’s board.
In addition, the company came under scrutiny after investigators discovered its aluminum composite panels contributed to the spread of a fire last year at London’s Grenfell Tower that killed 80 people.
At the time, Arconic said it had no control over how its products were used in the building.
‘PLAUSIBLE LBO CANDIDATE’
Following the WSJ report, Morgan Stanley analyst Rajeev Lalwani said two things stand out to make Arconic a “plausible” leveraged buyout candidate: Its low EV/EBITDA multiple, which creates potentially favorable entry and exit points, and its cash flow profile, which has room for improvement.
The analyst stated that a more lean and efficient approach could support considerably better cash generation.
While the reported private equity interest “adds a level of intrigue,” Lalwani still believes headwinds within it rings and disks business, working capital and CapEx issues and volatility associated with aluminum prices will be the key driver of shares in the near-term.
Given the aforementioned execution concerns, Lalwani kept an Equal Weight rating and $20 price target on Arconic shares.
‘VERY VIABLE LBO CANDIDATE’
Credit Suisse analyst Curt Woodworth said he views Arconic as a “very viable” leveraged buyout candidate given its “highly depressed” multiples, operational and financial mismanagement, and “very strong” positions in automotive and aerospace end markets.
The analyst believes the issues at Firth Rixson are “very fixable” as the company is a new entrant into the disks market and said Arconic could be worth $24-$26 per share in a buyout. Woodworth has an Outperform rating on the shares with a $28 price target.
On Monday, Arconic announced it had signed a new long-term contract with Boeing (BA) to supply aluminum sheet and plate for all models produced by Boeing Commercial Airplanes.
The multiyear contract, which extends and adds to the companies’ 2014 contract, is the largest to date and captures growth in the build rate increases of the Boeing 737 program.
Arconic rose about 10%, or $1.73, to $19.12 in morning.
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