How One Bolt-On Merger Can Help AK Steel Transform

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AK Steel Holding Corp. (NYSE: AKS) has sold off just a bit after the steel giant recently announced that it will acquire Precision Partners for a total of $360 million in cash. The pullback might be explained by the fact that there is no rapid payoff for AK Steel, and maybe that it is expanding for the sake of size over its own internal metrics improvement. Then again it’s hard for steel companies to find great riskless opportunities these days.

The transaction is subject to customary closing and regulatory approvals in the United States and Canada. Following the conclusion of the regulatory review, the deal is expected to close during the third quarter of 2017.

Some quick background on Precision Partners: it is a leading North American automotive market company that provides engineering, tooling, die design and the stamping of complex, hard-to-manufacture automotive components, with a broad portfolio of highly engineered solutions.

This acquisition makes up a sizable chunk of change at AK Steel, which has a total market cap of roughly $2.0 billion. This breaks down to about 18% of AK Steel’s cap.

The move to buy out Precision Partners advances AK Steel’s core focus on the high-growth automotive lightweighting space and its prominent position in advanced high strength steels. The acquisition further strengthens close collaboration with AK Steel’s automotive market customers.

Roger Newport, CEO of AK Steel, commented:

The acquisition of Precision Partners underscores AK Steel’s commitment to expand our portfolio of high-value products and processes. Precision Partners has a highly experienced leadership team and is an innovator in the markets they serve. This acquisition will combine the best of both companies, bringing AK Steel’s innovation in materials and manufacturing together with Precision Partners’ tooling and stamping knowledge and technology, to create a differentiated, innovative leader in the steel industry.

Shares of AK Steel were trading down 2% at $6.25 on Wednesday, with a consensus analyst price target of $8.59 and a 52-week range of $3.87 to $11.39.