Isn’t It Arconic, Don’t You Think? Like A Private Equity Bid After Your Spinoff

The WSJ is reporting that Arconic (ARNC) is nearing a deal with private equity firm Apollo Global Management (APO) to be taken private. While the exact deal value is unknown right now, estimates peg Arconic’s value at over $10b or between $21 and $22 per share. The price represents a modest premium to recent close, but the name has risen recently due to buyout interest.

The company was a hot property after its 2016 spinoff of Alcoa (AA, technically, Arconic was the parent), but excitement about the aerospace market seemed to get ahead of the actual results leading to sharp share price decline. Additionally, the company’s building products were implicated in the tragic 2017 Grenfell Tower fire. Despite the negative coverage, the estimated purchase price (which is of course subject to change) would still represent a win, albeit a smallish one (~+11-16%), for shareholders since the spin off. It also represents yet another win for Paul Singer’s Elliott Advisers which orchestrated Alcoa’s breakup and has remained a large Arconic shareholder (~10.75%) afterwards. I am still disappointed that there hasn’t been any update on the famous soccer ball’s meaning though. Spinoff veterans won’t be surprised by this fact, but for those wondering, the ‘boring’ and ‘unsexy’ Alcoa is currently outperforming its parent with a percentage gain in the mid 20’s. Not an unusual phenomenon.

Arconic has been in play since at least last summer and was targeted by several other major private equity firms including KKR and Blackstone so a higher bid is always possible. Whichever firm triumphs, the deal is shaping up to be one of the largest leveraged buyouts in a long time. It will be interesting to see how the credit markets respond and also to see what kind of spread the equity market puts on the deal. Other than that though, not much more for most shareholders to do here.

Disclosure: Author holds no position in any stock mentioned.