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Kennametal acquires ATI's tungsten business for $605M

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By Thomas Olson
Monday, Sept. 16, 2013, 10:54 a.m.
 

Kennametal's $605 million acquisition of a tungsten materials producer will deepen the high-tech manufacturer's penetration in energy and aerospace markets and bolster its tungsten recycling plans.

Kennametal, based in Unity, agreed to acquire the business from Allegheny Technologies Inc. on Monday. The business, which has about $340 million in annual sales, is a leading producer of tungsten metallurgical powders, as well as tooling technologies and components.

“It wasn't cheap, but it's a good deal that will work out well over the long term,” said Eli Lustgarten, senior vice president and analyst at Longbow Research LLC, Independence, Ohio.

The acquisition furthers Kennametal's strategy of diversifying the company's sourcing of tungsten and expanding capacity. It had acquired the assets of a Bolivian supplier of tungsten ore materials in July.

Kennametal said the lion's share — 42 percent — of the tungsten unit's sales are to energy-related businesses. Aerospace represents about 11 percent of sales. Three-quarters of its sales are in North America.

Kennametal uses tungsten materials to produce composite alloys and high-performance cutting tools.

Tungsten is an extremely hard, tough metal. It is used, for instance, in the bodies of crushing machines that process Canadian tar sands.

In addition, the business has the ability to recycle tungsten, which is a strategic goal of Kennametal's, said Rudolf Hokanson, an analyst at Barrington Research in Chicago.

“This business is sort of an A-Z of tungsten. They supply materials and make tungsten products,” as well as recycle the metal, Hokanson said.

The purchase is Kennametal's largest since buying Greenfield Industries Inc. for $945 million almost 16 years ago, according to data compiled by Bloomberg and confirmed by the company.

Shares of Kennametal closed at $46.39, up 39 cents.

The tungsten business has approximately 1,175 employees and 14 operating facilities worldwide, but none in Western Pennsylvania.

Kennametal spokeswoman Christina Sutter said no decisions had been made about jobs or layoffs because it was still early in the process.

The acquisition could result in $30 million to $40 million in synergies, mostly through improved productivity, Kennametal said.

ATI, based Downtown, said the sale of the business would give the specialty metals and titanium producer greater financial flexibility and simplifies capital allocation and deployment.

The deal, which Kennametal will finance with cash and available credit, is expected to close before the end of the year, pending regulatory approvals.

Kennametal said the deal would be neutral to its earnings for the rest of its fiscal year ending June 30. Last fiscal year, the company's earnings fell 34 percent to $203 million, or $2.52 a share, from $307 million, or $3.77 a share. Annual sales decreased 5.4 percent to $2.59 billion from $2.74 billion.

“The addition of the expanded material and tooling technologies of ATI's Tungsten Materials Business will enable us to offer more to our customers around the world,” Kennametal CEO Carlos Cardoso said in a statement. “We look forward to building on our respective strengths to accelerate growth while generating even greater value for our business and ultimately our shareholders.”

Bloomberg contributed to this report. Thomas Olson is a Trib Total Media staff writer. He can be reached at 412-320-7854 or at tolson@tribweb.com.

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