What happened
Private equity giant Apollo Global Management (APO 0.30%) has a deal in place to acquire Arconic (ARNC) for about $5.2 billion in cash and assumed debt. The news sent shares of the metal products manufacturer up about 26% on Thursday, coming close to matching the offer price.
So what
Arconic has been a company in transition for most of the last decade. It was once the finished-products business of aluminum producer Alcoa, but it was spun off as an independent in 2016. Three years later, Arconic split itself again, grouping its engine products, fasteners, and other aerospace components into a separate company called Howmet Aerospace.
What remained as Arconic was a collection of rolled-metal products, aluminum extrusions, and building and construction products. The stock had more than doubled over the past three years, but of late, some investors had been questioning how well Arconic's businesses will hold up in the event of a recession.
Apollo is taking the long-term approach. The private equity firm has agreed to acquire Arconic for $30 per share in cash, a premium of 36% to the target's close on Feb. 27 when rumors of a potential sale first leaked.
Now what
It is hard to say for sure what near-term macro headwinds might do to Arconic, but the long-term trends for aluminum-based products are strong. The lightweight, high-performance metal is an ideal replacement for heavier alternatives. An acquisition by Apollo will give Arconic the resources it needs to invest through a potential downcycle.
The deal is subject to regulatory and shareholder approval and is expected to close in the second half of the year. While nothing is guaranteed until close, there is little here that regulators should find questionable, and few other buyers have the resources to get into a bidding war with Apollo.
The most likely outcome from here is that Arconic will cease to be a publicly traded company before the beginning of 2024.
