Markross121_ No Comments

Apollo’s $15B mega-deal falls apart in final moments

It was on track to be one of the biggest leveraged buyouts since the financial crisis.

Instead, metals company Arconic has ended negotiations with Apollo Global Management over a deal the would’ve reportedly valued the business at more than $15 billion, including debt. The announcement comes after months of talks, with news emerging last week that the two sides were close to striking an agreement. Apollo reportedly offered $22.20 per share for Arconic, which manufactures aluminum and titanium products for the aerospace, energy and automotive markets.

The company’s stock (NYSE: ARNC) plummeted 16% to $17.09 per share Tuesday, dropping its market cap to about $8.3 billion.

Apollo originally beat out bids from private equity heavyweights including Blackstone and The Carlyle Group, but negotiations were complicated. The company was still dealing with fallout after cladding panels produced by its building products division caught fire in the Grenfell Tower blaze that killed 72 people and displaced more than 200 households in 2017. Arconic said in its press release that it will continue to pursue a sale of its building products business, despite facing class-action lawsuits from investors in the US, along with other potential liabilities.

In retrospect, it probably wasn’t the ideal time for Arconic to take on a huge debt burden. The Trump administration’s 10% tariffs on aluminum imports have dimmed the company’s economic outlook. Though the deal was eventually fully financed, getting a loan was hard to come by thanks to a record-long dry spell in the junk bond market, per The Wall Street Journal. Even when credit markets are stable, deals of that size aren’t very common. There have been just eight US buyouts of $15 billion or more since the financial crisis, per the PitchBook Platform.

It’s not all bad news for Apollo. The firm has reportedly reached advanced talks to purchase European packaging giant RPC for more than $3.8 billion, per The Wall Street Journal. If a deal is struck, that should ease some pressure on Leon Black’s buyout shop as it looks to deploy a record $24.6 billion buyout fund closed in 2017.

 

Read More – www.pitchbook.com

Markross121_ No Comments

Apollo nears Arconic mega-deal

In June 2017, a malfunctioning refrigerator sparked a fire at the Grenfell Tower apartment building in London. The blaze quickly engulfed the 24-story structure, ultimately resulting in 72 deaths and one of the largest residential disasters in recent British history.

Later government investigation attributed the rapid spread of the flames to the building’s poorly made cladding, a type of siding, which later tests showed was so combustible that it essentially turned the apartment into one giant, deadly tinderbox. The company that made that cladding was Arconic.

It perhaps wasn’t a surprise when, less than a year later, Arconic announced a strategic review, with reports indicating that it could sell the building products unit that made the aluminum panels involved in the Grenfell Tower disaster. Within months, prompted in part by continuing activist pressure from Elliott Management, talk turned to a wholesale takeover of the company.

It perhaps also wasn’t a surprise that several private equity firms showed interest—despite a number of looming lawsuits, criminal investigations and potential liabilities that could hamstring the business in the future.

Blackstone, The Carlyle Group and KKR were among the heavyweights to sniff around the building products unit, with Arconic describing the potential mega-deal as an effort to refocus its operations on building aluminum components for aerospace and auto companies rather than the construction market. But when the subject changed to a full buyout, Apollo Global Management emerged as the front-runner, with a potential price tag reported to be some $11 billion (or up to $20 billion including debt).

While Arconic’s direct involvement in a tragic, avoidable disaster that cost dozens of innocent lives is almost surely one factor behind the sale, another very obvious one is the presence of Elliott. The hedge fund won representation on Arconic’s board in early 2017 after a pitched battle and the ouster of former CEO Klaus Kleinfeld. The aluminum company’s stock price has continued to slide throughout 2018, which in Elliott’s mind seems to only cement the need for a complete leadership overhaul.

Apollo’s management thought a deal with Arconic could have been signed as soon as December, according to a New York Post report from the final day of 2018. But the buyout’s final hurdle is proving to be the continued tightening of global debt markets, raising doubt as to whether banks would be able to finance a deal as large as what Apollo and Arconic have in mind. Apollo is also believed to be considering a $40 billion move on the GE’s aviation leasing business, an even larger deal that will surely encounter similar concerns. A lack of available funding could very well endanger prospective Apollo deals worth $60 billion in total.

The role Arconic’s shoddy products played in the horrific events at Grenfell Tower make it painfully clear that major changes of some sort are needed at the company. Whether a private equity firm is the correct group to make those changes could be a matter for debate. But if the debt markets cooperate, then Leon Black and Apollo seem poised to be the ones navigating the transformations, lawsuits and reckonings that are almost surely ahead.

 

Read More – www.pitchbook.com