Arconic (ARNC 17.10, -3.24, -15.93%) is trading lower after the company
announced that its Board of Directors decided that it will no longer pursue a
potential sale of the company as part of its strategy and portfolio review.
The marker of engineered aluminum products reportedly rejected a $22/share cash takeover offer from private equity firm Apollo Global Management (APO).
Last week, multiple news outlets reported that a deal was expected at $22/share. However, there was reason to be skeptical as the potential deal kept getting delayed.
It was just over one year ago that new CEO Chip Blankenship initiated a review of the company's strategy and portfolio. Five months later, in July, the Wall Street Journal reported that private equity firms were interested in taking the company private.
Reports of private equity interest continued throughout the second half of 2018. In November, the New York Post reported that potential liabilities related to the tragedy at Grenfell Tower in London were slowing a potential deal. Arconic could be held liable for a June 2017 fire that killed 72 people in a building in London for which the company had supplied aluminum cladding.
A deal was expected before the end of 2018, but credit markets dried up in December, and the deal never happened. Arconic's stock collapsed along with the broader market to end the year, but on January 2, Bloomberg reported that a deal was likely by mid-January.
So, while a deal was expected at $22/share, the stock never got to that level, and healthy skepticism ended up being prescient.
Note that Arconic spun off the upstream aluminum business Alcoa (AA) in late 2016.
Arconic's enterprise value of close to $15 bln was less than 8x EBITDA estimates for 2018 and less than 7x EBITDA estimates for 2019 heading into today.
Arconic will likely report fourth quarter results in the first week of February. The company has beaten quarterly estimates on the top and bottom line in each of four quarters in a row. Analysts currently expect adjusted EPS to grow just over 20% to $1.59 in 2019.
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