Shares of Arconic (NYSE:HWM) fell nearly 21% today after the company announced that its board of directors had nixed a deal to sell the business. Investors first learned that buyout talks were taking place in July 2018. The news last summer immediately lifted shares of the specialty materials manufacturer, as an acquisition seemed to be a quick way out from under a slew of operational deficiencies, not to mention potential liabilities from the June 2017 Grenfell Tower fire that killed 72 people. (The company's metal cladding was used out of compliance with London's building codes.)
However, the complexity of the buyout discussions -- equity firms Apollo Global and Blackstone Group were involved, multiple Wall Street banks lined up to offer leverage, and options for splitting operations and selling them piecemeal were reviewed -- provided a healthy amount of skepticism that an arrangement could be made.
As of 11:10am EST, the stock had settled to a 18.4% loss.
The board of directors decided not to sell the business because a deal couldn't be reached for the entire company. As the Financial Times suggested [subscription required], buyers likely balked at the notion of assuming the looming Grenfell Tower liabilities from the building and construction materials segment. Arconic noted it will proceed with attempts to sell that unit and likely specify a cap on its financial responsibility for any future liabilities in any potential sale.
Going forward, investors will have to patiently wait for the previously announced turnaround strategy to bear fruit. Arconic began to slim down in 2018 by selling a rolling mill in Texas for $300 million in cash. It also began to refocus operations on higher-margin aerospace applications. The company announced a 3D metal printing joint development agreement with Lockheed Martin, signed its largest-ever supply deal with Boeing, and unveiled a new high-temperature titanium alloy for aerospace applications.
The decision to walk away from buyout talks may not be a bad thing for investors in the long run, but that'll be true only if management executes on strategic objectives to overhaul the company. CEO Chip Blankenship, who was brought in to turn Arconic around in January 2018, didn't exactly get off to the best start with investors given the roller-coaster ride of the now-abandoned acquisition talks. Whether or not he can regain the trust of Wall Street and investors remains to be seen, but this stock is a little too risky for most portfolios right now.
Check out the latest Arconic earnings call transcript.