New York, May 7 (Reuters): Alcoa will make a hostile bid for Canada’s Alcan for nearly $27billion, after merger talks between the aluminum rivals failed to lead to a deal.
If successful, the bid of $73.25 per share in cash and stock would create the world’s largest producer of the metal that is used for products ranging from beverage cans to airplanes, cars and heavy machinery parts.
Alcan said it plans to consider the proposal and advised shareholders to wait until it has fully reviewed the offer. Shares of both companies rose on the news.
“I just think that Alcan was perennially undervalued and it was inevitable something like this would happen,” said John Redstone, analyst at Desjardins Securities.
An Alcoa-Alcan combination would put its production capacity well above that of Russian rival United Company RUSAL, which was formed from the link-up of RUSAL, Russian SUAL and assets of Swiss-based Glencore International.
In India, Alcan had a 45 per cent stake in the Utkal Alumina project in Orissa with Hindalco as a partner. The project never took off due to local protest and Alcan had to exit earlier this year. Alcan was also the promoter of Calcutta- headquartered Indal. In 1999, Hindalco bought out Alcan's stake in Indal.
Given the size of the two North American companies, a deal is expected to draw scrutiny from regulators, and Alcoa said it was prepared to sell off assets to win approval.
Alcoa said its move comes after nearly two years of merger discussions between the companies that failed to yield an agreement. It put the enterprise value of the deal at $33billion, including $6billion in debt.
“We are very disappointed that those efforts did not result in a negotiated transaction — a conclusion we would have strongly preferred,” said Alcoa chairman Alain Belda. “Therefore, we are taking our offer directly to Alcan shareholders,” he added.
Alcoa, which is the world’s largest aluminum seller in terms of revenues, said the combined company would see finished aluminum production capacity of 7.8 million tonnes compared with RUSAL’s 4 million tonnes.
Its alumina capacity, the raw material used for the metal, would be 21.5 million tonnes versus RUSAL’s 11 million tonnes of capacity.
The bid of $58.60 in cash and 0.4108 per share of Alcoa common stock would represent a 32 per cent premium to Alcan’s average closing price on the New York Stock Exchange over the last 30 trading days.
Alcan’s shares surged 33.6 per cent to $81.54 per share on the New York Stock Exchange and 20 per cent to C$87.47 on the Toronto Stock Exchange in early trade. Alcoa shares gained 1.9 per cent to 37.57 per share in New York.
Australian rival BHP Billiton had been cited by analysts as a more likely buyer for Alcan, largely because of expected difficulties of getting regulators to approve an Alcoa-Alcan link-up.
“It seems like a lot of people were talking about Alcan as a potential takeover. I don't think Alcoa was ever viewed as a likely purchaser just because of the antitrust reasons,” said David Whetham, resource fund manager at Scotia Cassels.
In a letter from Belda to Alcan CEO Richard B. Evans made public on Monday, the Alcoa chief said the companies had discussed those issues last year, and were confident they could resolve any regulatory concerns.