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Kennametal to Buy Tungsten Biz of ATI

Zacks Equity Research

Kennametal Inc. (KMT) is again active on the acquisition front having signed an agreement to acquire Allegheny Technologies Incorporated’s (ATI) Tungsten Materials Business. The transaction, subject to regulatory approvals, is expected to be complete by the end of calendar year 2013.     

The acquisition has been valued at $605 million, which Kennametal intends to pay using its available cash and borrowings under its existing revolving credit facility.

Allegheny Technologies’ Tungsten Materials Business is among the leading producer of tungsten metallurgical powders and also provides tooling technologies and components. The business has two divisions namely, ATI Firth Sterling and ATI Stellram.

Post the completion of the acquisition, the acquired business brings with it roughly $340 million of annual revenue generation capacity and 1,175 employees operating from 14 facilities worldwide.

Kennametal has over time preferred accretive acquisitions and dispositions of non-core assets as its primary tool to shift its business portfolio toward favored growth markets. This current acquisition also aligns with the company’s long-term growth strategies and will enable diversification of product portfolio, expansion in the aerospace and energy end markets and strengthening of the tooling business.

Annual run-rate cost synergies within $30-$40 million range and cash tax benefits within $60-$70 million range is expected to be realized post the completion of the acquisition. Further, the acquisition also accelerates Kennametal’s plan for an advanced tungsten carbide facility. Further, the company has lowered its capital spending plan from $65 million to $35 million. For the fiscal year 2014, the acquisition is anticipated to be neutral to earnings.   

Earlier to this announcement, Kennametal had acquired Emura that enables the company to diversify and balance its tungsten sourcing capabilities.
Kennametal Inc. currently has a market capitalization of $3.6 billion. The stock carries a Zacks Rank #3 (Hold). Other stocks to watch out for in the industry are Actuant Corporation (ATU) and Sandvik AB (SDVKY), each with a Zacks Rank #2 (Buy).

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