Pennsylvania Specialty Metals Producers Carpenter, Latrobe to Merge
Specialty metals companies Carpenter Technology Corp. and Latrobe Specialty Metals Inc. have entered a merger agreement through which Carpenter will acquire Latrobe in a $558 million transaction. The deal follows on the heels of Latrobe’s filing of a motion to take the company public.
"The Latrobe acquisition will provide needed capacity to meet strong customer demand for our premium products, improves our position in attractive segments like aerospace and energy, provides capabilities that will help us commercialize important new product offerings, and offers us improved returns on new capability investments," says William A. Wulfsohn, president and CEO of Carpenter. "Our strategy is to grow through a combination of organic growth initiatives and acquisitions, with a focus on markets that value the technical sophistication of our products.”
Latrobe was acquired in 2006 by Hicks Equity Partners and The Watermill Group. As part of the transaction, Thomas O. Hicks, chairman and CEO of Hicks Equity Partners, and Steve Karol, managing partner and founder of The Watermill Group, will join Carpenter's board of directors.
"Our companies are an excellent fit. As part of Carpenter, the industry's technology leader, the combined company will reach new markets and be well positioned to provide more offerings to customers and business partners throughout the world,” Hicks says.
Karol says discussions about the merger began after Latrobe took steps to become a public company. “If this didn’t happen, we were very happy with our own IPO and what it would do for us. But Wulfsohn convinced us the combination of the two companies would be better than going on our own, and obviously we agreed.”
Although the two companies primarily serve the same end markets, particularly aerospace, oil and gas, power generation and defense, they’re not generally direct competitors. “We’re more complementary than we are competitive,” he says.
He points to both companies’ newest vacuum induced melting facilities constructed within the past two years as examples where the new combination will pay off. Under the arrangement, the combined companies will balance production so the larger facility will be producing material in greater demand, reducing bottlenecks at both places. “The market will be happy about this, because they’ll be getting their steel faster.” Karol says.
Though long-range plans have not been disclosed, Karol does not envision any facility closures as a result of the acquisition. “They bought the company because Latrobe’s production capabilities are important to them. They need capacity. Without having yet sat in on a board meeting there, my guess is they’ll be investing in Latrobe operations alongside their own operations, and I’m almost positive we won’t see any facility shutdowns.”
Wulfsohn expresses similar sentiments. "We consider Latrobe an important extension of Carpenter's capabilities and are very proud of our new partnership. By combining the two companies, we will improve product mix, lower cost and reduce required capital investments for future growth.”
Latrobe manufactures and distributes high-performance materials for aerospace, defense, energy, and other significant applications with manufacturing operations in Pennsylvania, Ohio, Texas and the United Kingdom, and seven distribution centers located throughout the United States. Annual revenues for the 12 months ending March 31 were $379 million.
Carpenter, like Latrobe, also provides distribution through its Talley Metals operation in South Carolina and Aceros Fortuna in Mexico. Karol does not know how distribution will be handled in the new combined company, but says Latrobe’s distribution system has been a successful part of the business and is “a way of keeping our toe in all sides of the market.”
The transaction is subject to customary closing conditions and regulatory approvals. Closing is expected to occur during the first quarter of Carpenter’s 2012 fiscal year, which ends Sept 30.