Does the largest takeover in
titanium industry history mean the days of the major
independent producer are numbered? With the $2.9-billion
acquisition of Dallas-based Titanium Metals Corp. (Timet), the
industrys largest producer, by Precision Castparts Corp.
(PCC), that question might already have been answered.
The acquisition marked the
biggest step so far in a consolidation trend thats
transforming what once was an industry of individual titanium
mills into what essentially are the first stages of production
in aerospace supply chains that have been built under the
umbrella of individual parent companies.
It brings to PCC titanium
production that in
the third quarter amounted to about 11.6 million pounds of
melted and mill products, or some 47 percent of the 24.6
million pounds of titanium reported sold by the three major
domestic producers, which includes Allegheny Technologies Inc.
(ATI) and RTI International Metals Inc., both based in
Portland, Ore.-based PCC was
already Timets single-largest customer, accounting for 16
percent of the producers 2011 sales and surpassing even
Chicago-based aerospace giant Boeing Co., although many of
PCCs products end up on Boeing aircraft, according to
documents filed with the U.S. Securities and Exchange
Commission. PCCs largest customer for the fiscal year
ended April 1 was engine builder General Electric Co.,
according to PCCs SEC filing.
The acquisition by PCC makes
Timet part of the same company that owns Grafton, Mass.-based
Wyman-Gordon Co., generally considered the largest U.S.
aerospace forgings producer and itself believed to be a major
expertise and PCCs forging and conversion assets are a
complementary strategic fit, Mark Donegan, PCCs
chairman and chief executive officer, said in announcing the
agreement in early November. In addition to forgings, PCC is a
major producer of castings and fasteners and, more recently,
machined aerospace parts and components.
It also gives PCC an in-house
source of titanium melting capacity to complement the nickel
and cobalt alloys produced by its Special Metals Corp. unit in
This transaction, in our
opinion, is a major strategic move with benefits on the order
of (Precision Castparts) acquisition in (2006) of Special
Metals, Lloyd OCarroll, senior vice president of
research at investment firm Davenport & Co., Richmond, Va.,
said in a note to investors. The acquisition is a major
step in consolidating the supply chain, with consequences
for the titanium and forging industries and original equipment
manufacturers (OEMs), both airframe and engine makers.
PCC didnt respond to
requests for comment on its plans for Timet, but Donegan told
securities analysts in late November that the company will
utilize the downstream assets of Special Metals to stretch
Timets product range, utilizing the nickel alloy
producers mill capabilities to complement Timets
fully integrated melting capabilities.
Industry observers think one
part of Special Metals that could prove particularly attractive
to Timet is its 110-inch mill in Huntington, which could be
used to convert Timet feedstock into aerospace alloy titanium
While Timets takeover
leaves RTI as the closest thing among the top three producers
to a standalone titanium mill, the producer, fabricator and
distributor would probably argue with this label.
RTI declined to comment on the
impact of Timets purchase, but it has already embarked on
a course to become a supplier of integrated titanium
manufacturing, as described earlier in 2012 by Dawne S.
Hickton, its vice chairwoman, president and chief executive
RTI took its largest move beyond
mill products and into the downstream aerospace, defense and
medical device markets with its largest-ever acquisition: the
$182-million purchase in February last year of Remmele
Engineering Inc., New Brighton, Minn., following the 2011
acquisition of the forming division of Britains Aeromet
International Plc, now called RTI Advanced Forming Ltd., and
the 2004 purchase of Claro Precision Inc., a Canadian
manufacturer of aerospace components and complex mechanical and
electrical assemblies in which RTI subsequently invested $100
Moreover, ATI moved down the
supply chain in 2011 with its $778-million acquisition of
Cudahy, Wis.-based castings and forgings producer Ladish Inc. A
spokesman for ATI, which has its own in-house supply of both
titanium and nickel alloys, said in September that the supply
chain is demanding an integrated supplier. It
wants someone whos integrated through sponge, melt,
nearly all the product forms, and who can control the quality,
productivity and delivery of product, he said.
PCCs interest in acquiring
Timet shouldnt have been a surprise. In July,
Donegan--pointing out that PCCs goal is controlling
our own value stream--told securities analysts that the
company would love to get forged titanium capability in
terms of input stock.
Still, for all its interest in
Timet, PCC might never have been able to seal the deal without
the presidential election. Its generally presumed that
the re-election of President Obama, which raised the likelihood
that capital gains taxes would go up, helped to convince
billionaire investor Harold Simmons to sell his controlling
interest in Timet.
The sale of Timet to
Wyman-Gordons parent might be expected to push some of
its other forge shop customers to seek other titanium sources
instead of buying from what they might view as a competitor.
But most titanium shipped today by the three major mills is
part of long-term supply agreements with engine or airframe
OEMs, some of which run for years. In 2011, 64 percent of
Timets sales were under long-term agreements.
Nonetheless, we would
expect (Timets) competitors to try to gain whatever share
is in play at aero forgers because of this transaction,
Gautam Khanna, who covers the titanium and specialty metals
industry at Boston investment firm Cowen & Co. LLC, said in
a note to investors.
While few would argue with
Donegans description of the Timet acquisition as a
needle-mover for PCC, on another level it merely
confirms a consolidation trend thats been evident for the
past few years and is likely to continue.
In todays world,
when aerospace manufacturers are trying to build supply chains
inside their own companies, it may mean less than it did in the
days when the industry was mainly made up of independent
mills, a titanium industry executive said about the
One sector where little concern
was evident over the acquisition was distribution, where most
service centers so far see little threat of losing market
From time to time, mills
have dabbled in building inventory, a titanium
distributor said, adding that he doesnt expect this
practice to be favored by a company with PCCs reputation
for efficiency. They (PCC) probably wont have a lot
of tolerance for holding inventory. Thats our