Morningstar | Arconic Trades Higher on Continued Buyout Speculation; Our $24 Fair Value Estimate Is Unchanged
On Jan. 15, a Wall Street Journal article stoked the embers of long-running speculation that Arconic is nearing a buyout deal at the hands of Apollo Global Management. Buyout rumors have swirled since July, but neither Arconic nor any of its suitors have provided specifics regarding offer details or the potential timing of a deal. The most recent article provides little in the way of incremental information, although it does indicate that Apollo would be likely to pay "between $21 and $22 per share" if a deal is announced. Back in July, media speculation had indicated a deal price in the "mid-$20s" range, and in October, a deal price of $23-$24 was rumored. Shares closed just above $20 per share on Jan. 15.We have no reason to be skeptical that an offer of $21-$22 per share from Apollo is currently under consideration by Arconic's board. However, we continue to believe that the no-moat company's intrinsic value is $24 per share. Accordingly, we contend that a deal in the range of $21-$22 per share would represent great value for the acquirer while being sub-optimal for Arconic shareholders.
Granted, Arconic is currently navigating what we expect to be a long-term turnaround story, and we see no meaningful near-term catalysts on the horizon. Without any new concrete information supporting a higher likelihood that a deal will be consummated, our fair value estimate is unchanged for now. If a deal were to be announced, our updated fair value estimate would take into account the offer price, our prior fair value estimate, and our assumed probability of deal completion.
Arconic is engaged in lightweight metals engineering and manufacturing. The company's segments include: Engineered Products and Solutions, which produces products that are used mainly in the aerospace (commercial and defense), industrial, commercial transportation, and power generation end markets; Global Rolled Products, which produces aluminum sheet and plate for a variety of end markets, and also produces aseptic foil for the packaging end market; and Transportation and Construction Solutions, which produces products that are used in the commercial transportation and nonresidential building and construction end markets, and also produces aluminum products for the industrial products end market.
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