Kennametal Inc., a maker of metal-cutting tools, agreed to buy supplier Allegheny Technologies Inc.’s tungsten materials unit for $605 million, helping expand in aerospace and energy with its biggest purchase since 1997.
The deal is structured as both an asset and stock purchase that will create a cash tax benefit of as much as $70 million, Kennametal said in a statement. The Latrobe, Pennsylvania-based company said it expects the transaction to close by year-end.
Adding the Allegheny unit will deepen access to raw materials as Kennametal seeks growth in aerospace and energy. The acquisition also will speed up Kennametal’s plan to open a tungsten carbide recycling facility, according to the statement.
“It re-balances the company to some degree,” said Eli Lustgarten, senior research analyst at Longbow Securities in Independence, Ohio. “It will give them more stable long-term growth.”
Kennametal’s long-term goal is to split its business evenly between industrial and infrastructure markets. The acquisition will boost the infrastructure portion to 46 percent from 43 percent, the company said in a presentation on its website. Lustgarten, who cited the Kennametal data, recommends buying the company’s shares.
Allegheny shares rose 8.1 percent to close at $30.95 in New York. Kennametal climbed 0.9 percent to close at $46.39.
The purchase is the company’s largest since buying Greenfield Industries Inc. for $945 million almost 16 years ago, according to data compiled by Bloomberg that was confirmed by Kennametal.
The acquisition will reduce planned capital spending by at least $30 million, Kennametal said. The company will use cash and available borrowings under its credit revolver to pay for the tungsten business. Pittsburgh-based Allegheny said the unit’s annual sales are about $340 million.
Kennametal has revenue of $2.59 billion in its fiscal year that ended June 30. Its customers include manufacturers such as Boeing Co., Rolls-Royce Holdings Plc and General Electric Co., according to data compiled by Bloomberg.
Kennametal was advised by JPMorgan Chase & Co., with Reed Smith LLP as its legal counsel. Allegheny’s financial adviser was Goldman, Sachs & Co., and K&L Gates LLP was its legal counsel.