General Cable Corporation intends to acquire Alcan Cable, the wire and cable business of Rio Tinto plc (RIO - Free Report) . The acquisition will be made at $185 million in cash, subject to normal adjustments, mainly relating to working capital levels at the time of closure.
General Cable expects to finance the transaction through its Asset Based Revolving Credit Facility. Subjected to regulatory clearances, the acquisition is expected to close in the second half of 2012.
Alcan Cable serves the energy and construction markets in the United States, Canada, Mexico and China though approximately 1,050 associates employed in its aluminum cable manufacturing and distribution facilities. Alan Cable’s operating margin was in the low single digits in 2011. Further, annual revenue contribution from the acquisition is expected to be approximately $650-700 million at current metal prices.
Over the past 100 years, Alcan Cable has been working in its sector, enjoying an outstanding position and renowned for its commitment to its work. Alan’s brands, STABILOY and NUAL, are well known for their standard quality, packaging and service in the North American aluminum cable industry. Addition of a company like Alan Cable is strategically sound for General Cable.
General Cable is engaged in the development, design, manufacture, marketing, and distribution of copper, aluminum and fiber optic wire and cable products for the energy, industrial, specialty and communications markets. The company will be able to expand its presence in these markets with the addition of Alan Cable.
Primary demand for General Cable’s products comes from North America. During the first-quarter 2012, sales volume in North America, measured in terms of metal pounds sold, increased 7% year over year. The combination of Alcan’s expertise provides manufacturing, logistics, and purchasing synergy to the company’s North American businesses.
Further, greenfield operation in China is expanding, and Alcan’s presence in these markets provides additional opportunity. The deal is expected to create shareholder value in the near term.
General Cable Corporation holds a Zacks #3 Rank (short-term Hold recommendation).