Kaiser Aluminum Corporation (KALU) poured $670 million to acquire Alcoa Warrick

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Kaiser Aluminum Corporation recently confirmed that it has entered into a preliminary agreement to acquire Alcoa Warrick from Alcoa Corporation for a total price of $670 million, containing all the properties of the Warrick Rolling Mill, at an implied multiple of approximately seven times the adjusted EBITDA as of the last twelve months ended September 30, 2020. Alcoa will maintain control of the smelting assets, power plant, and property connected with it. Kaiser Aluminum will enter into a market-based sourcing deal for molten aluminium as part of the arrangement, as well as a long-term land lease that provides arrangements for energy utilities which will provide customary relocation services.

In the very desirable North American aluminium packaging market, Warrick, based near Evansville, Indiana, has a major position. Warrick exported over 675 million pounds of aluminium in the last twelve months, of which nearly 60% were high-margin coated packaging items. Casting, substantial hot and cold rolling power, and a number of finishing and coating lines are included in the plant, representing significant replacement value.

“The acquisition offers us an opportunity to significantly improve and diversify our portfolio with Warrick’s solid market position, highly favorable market dynamics, and a strong and culturally compatible management team,” said Keith A. Harvey, President, and Chief Executive Officer.

The inclusion of a non-cyclical packaging sector is strongly complementary to our current cyclical end markets in aerospace, industrial, and general manufacturing and offers excellent long-term growth opportunities and synergies with our existing activities. Overall, the deal is consistent with our long-standing strategy of purchasing companies that we appreciate at a price that generates long-term value for our shareholders while continuing to comply with our prudent liquidity management and debt leverage financial plan,” said Mr. Harvey.

The transaction offers an entrance into the North American aluminium packaging industry for Kaiser Aluminum, a rising end market powered by environmental developments and the structural change in the packaging industry from plastic to aluminium. The soda and food stock potential has moved from packaging to other end markets, resulting in beneficial patterns of supply/demand.

The inclusion of Warrick greatly raises the size and pro forma modified EBITDA of Kaiser Aluminum. The deal is projected to increase earnings immediately and produce positive cash flow.

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