Alcoa share price down, to acquire RTI International Metals for $1.5 billion

Alcoa Inc announced on Monday it would bolster its business portfolio by acquiring titanium supplier RTI International Metals Inc as the metals company sticks with its bet on the aerospace industry.

The New York-based company said the all-stock deal has an enterprise value of $1.5 billion and for each of its shares RTI investors will receive 2.8315 Alcoa shares, representing a value of $41 per RTI share based on Alcoa’s closing price on Friday.

Alcoa continues with its push towards the more lucrative aerospace industry, which the company projected to have a global annual growth rate of 5% to 6% through 2019. RTI generated 80% of its 2014 revenue from the aerospace and defense industries, the company said, outlining that the acquisition is in line with the companys areas of interest.

For the past year the Pittsburgh-based company reported a revenue of $794 million in 2014 and estimated it would generate sales of $850 million in the year ahead. Additionally, Alcoa projected RTI to reach an annual revenue of $1.2 billion by 2019.

“We are combining two innovators in materials science and process technology, shifting Alcoa’s transformation into a higher gear,” said Alcoas Chief Executive Klaus Kleinfeld.

Alcoa is trying to move its focus from its less profitable smelting operations, which were put under pressure as most metal prices dropped, to producing lightweight metals.

The company said RTI would boost Alcoas existing operations in “cutting-edge materials”, including titanium-aluminides, which is used for creating parts of the next-generation jet engines and is expected to be highly demanded from manufacturers.

The company has been aggressively reducing its smelting business and since 2007 has reduced its production capacity by around 30%. Last week, Alcoa announced its was evaluating a further 14% decrease in production potential.

The deal with RTI follows two other similar agreements. In November Alcoa completed its $2.8-billion acquisition of British jet-engine parts maker Firth Rixson. Earlier this month the company also completed the takeover of Germanys Tital, a leading producer of titanium and aluminum castings designed for aircraft engines.

Alcoa said the deal has been voted in favor of by both boards, but is still subject to regulatory approval, and is expected to close within the next three to six months.

Alcoa gained 0.70% on Friday and closed at $14.48 on Friday in New York, marking a one-year increase of 19.08%. The company is valued at $17.70 billion. The stock dropped 3.94% on Monday to $13.91 during pre-market trading.

According to CNN Money, the 20 analysts offering 12-month price forecasts for Alcoa have a median target of $18.75, with a high estimate of $23.00 and a low estimate of $15.00. The median estimate represents a 29.49% increase from the last closing price.