Carpenter Technology to Acquire Latrobe

Carpenter Technology Corporation (NYSE: CRS) and Latrobe Specialty Metals, Inc. Have announced they have entered into a definitive merger agreement whereby Carpenter will acquire Latrobe in a transaction valued at approximately $558 million. In the transaction, 8.1 million shares of Carpenter stock, subject to certain adjustments for working capital and pension, representing a current equity value of approximately $388 million, will be issued to the current owners including Hicks Equity Partners and The Watermill Group. Carpenter will also pay $170 million in cash to eliminate Latrobe debt at closing and reimburse certain transaction costs.

Acquired by Hicks Equity Partners and The Watermill Group in December 2006, Latrobe manufactures and distributes high-performance materials for aerospace, defense, energy, and other significant applications with manufacturing operations in Pennsylvania, Ohio, Texas, and the United Kingdom and seven distribution centers located throughout the United States. Annual revenues and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) for the twelve months ending March 31, 2011 were $379 million and $58 million respectively.

"Our strategy is to grow through a combination of organic growth initiatives and acquisitions - with a focus on markets that value the technical sophistication of our products," said William A. Wulfsohn, President and Chief Executive Officer of Carpenter Technology. "The Latrobe acquisition will provide needed capacity to meet strong customer demand for our premium products, improves our position in attractive segments like aerospace and energy, provides capabilities that will help us commercialize important new product offerings, and offers us improved returns on new capability investments.

"We consider Latrobe an important extension of Carpenter's capabilities and are very proud of our new partnership. By combining the two companies we will improve product mix, lower cost, and reduce required capital investments for future growth.

"We expect the acquisition to be accretive in year one, even including the one-time costs associated with the merger, and highly accretive in future years. Annual net synergies are anticipated to be in excess of $25 million. The combined entity should be a strong cash generator, with improved growth potential.

"We are financing the cash portion of the acquisition with $170 million of available liquidity. The large percentage of equity is strong evidence of the confidence that the Latrobe ownership group has in the combined company's prospects going forward. It also preserves our strong balance sheet ahead of what we expect will be an important phase of investment and growth."

As part of the transaction, Thomas O. Hicks, Chairman and Chief Executive Officer of Hicks Equity Partners and Steven E. Karol, Managing Partner and Founder of The Watermill Group will join Carpenter's Board of Directors.

Steven E. Karol said, "We are proud of what Latrobe has accomplished over the last four years. We and our partners at Hicks Equity Partners have worked closely with management to refocus the business on high-value products. As a result, Latrobe has expanded capacity, created new opportunities within the oil, gas, and power generation industries, and fostered an entrepreneurial culture that has fueled the success of the business. By joining forces with Carpenter, Latrobe will be positioned to drive future growth and capitalize on the many new value creation opportunities it will enjoy as part of this engineered metals leader."

"While we recently filed to take Latrobe public, we quickly came to see that the opportunity to join together with Carpenter provides superior benefits for all of our stakeholders," said Thomas O. Hicks. "Our companies are an excellent fit, and as part of Carpenter - the industry's technology leader with a more comprehensive platform - the combined company will reach new markets and be well positioned to provide more offerings to customers and business partners throughout the world. Latrobe and Carpenter have an exceptional future together and we look forward to building outstanding value for the combined company's shareholders and customers."

Latrobe's shareholders will own approximately 15.5% of Carpenter's outstanding common stock.

"The combination creates a business not just with better economics, but with more durable competitive advantage leveraging the expertise of both companies," said B. Christopher DiSantis, President & Chief Executive Officer of Latrobe Specialty Metals. "We are excited that this transaction will be a quick catalyst for incremental growth, provide new opportunities for our employees, and enable us to better utilize the overall asset base to enhance how well we service customers."

The transaction is subject to customary closing conditions and regulatory approvals. Closing is expected to occur during the first quarter of FY2012, which ends September 30, 2011.

Carpenter was represented by J.P. Morgan as financial advisor and Pepper Hamilton LLP as legal counsel. Latrobe, Hicks Equity Partners and Watermill were represented by Credit Suisse as financial advisor and Jones Day as legal counsel.