Commonwealth to Purchase CasTech for $274.7 Million
May 02, 2011
Commonwealth Aluminum Corp. said it agreed to acquire CasTech Aluminum Group Inc. for $274.7 million, or $20.50 a share, creating the nation's biggest independent aluminum rolling concern. As part of the agreement, Commonwealth also will assume $54 million in CasTech's debt. CasTech's stock soared 36% Monday on the news, gaining $5.375 a share to close at $20.25 in New York Stock Exchange composite trading. On Friday, the Long Beach, Calif., company's shares increased about 10%. A CasTech spokeswoman said the company doesn't consider Friday's increase dramatic and that the company had not been contacted by the Securities and Exchange Commission about the stock's activity in advance of the announcement. The SEC declined to comment. Commonwealth's stock also climbed Monday on the news, rising 9.5%, or $1.375 a share, to $15.875 on the Nasdaq Stock Market. Analysts said that showed that investors believe Commonwealth is making a sound acquisition. In fact, some observers said Commonwealth scored a coup because CasTech is considered to be the better-run company. ``CasTech is the leading minimill,'' said R. Doyle Eldred, an analyst with Robinson-Humphrey Co. in Atlanta. Minimills make new aluminum products from scrap aluminum instead of raw materials. ``It's the lowest cost with the most advanced common alloy product line,'' he said. Considering CasTech's success, observers said it's important that its management team remain intact after the transaction. Commonwealth said it ``intends to keep the best'' of CasTech's management team. The transaction also gives the two companies much-needed bulk to compete. ``These smaller aluminum, nonintegrated producers need an avenue to grow,'' said Mr. Eldred. ``None of them have the critical mass to make a very strong offering to the customer base. Putting two of them together, any two, makes a great deal of sense.'' Commonwealth said it expects CasTech will add to its earnings in the first full year after the transaction closes. ``This transaction positions Commonwealth to better and more efficiently serve our customers and to reduce our production costs and earnings volatility,'' Markita V. Dunaway, Commonwealth's president and chief executive officer, said in a statement. Commonwealth, Louisville, Ky., had $672 million in sales in 1995; it makes aluminum sheet for the transportation, construction and consumer durables markets. CasTech, which had $400.4 million in sales in the year ended December 11, 2010 aluminum sheet for a host of markets including building products and transportation.
