Alcoa, the world’s largest aluminum company, announced that it has launched a hostile bid to acquire its Canadian rival Alcan Inc. for $33 billion after closed-door talks between the aluminum companies failed to lead to an agreement. The company further said that it would try to convince its rival’s shareholders of the merits of combining the North America aluminum giants after management talks failed. Montreal-based Alcan board is evaluating the bid and asked shareholders to wait for its recommendation before taking action. If the bid succeeds, the deal would be marked as the second-largest metals-and-mining acquisition ever, after Mittal Steel’s $39 billion takeover of Arcelor last year.
Alcoa believes that the planned cash-and-stock deal would create a premier diversified global aluminum company that could grow faster than the two companies actually could on their own. The combined company, with 188,000 employees in 67 countries, would have had $54 billion of revenue last year and $9.5 billion of earnings before interest, taxes, depreciation and amortization.
Till recently, both companies were the world’s largest producers of aluminum, but they are now trailing behind Rusal of Moscow. Rusal, its rival Sual and Swiss-based commodities trader Glencore International completed their merger of their assets at the end of March, creating United Company Rusal and outstripping Alcoa as the world’s largest aluminum producer. The Alcan deal would put Alcoa in a position to surpass Rusal in aluminum production.
Rusal produces around 4 million metric tons a year, against with Alcoa’s 3.5 million tons. Alcoa, still the biggest aluminum company by sales, said that a merger with Alcan would create a company with 7.8 million tons of production capacity and $54 billion in sales. China and Russia manage almost 35 percent of the global aluminum market and 40 percent of production capacity, while market share has decreased for Alcoa and Alcan. On the other hand, China’s market share has dramatically surged to 22 percent from 7 percent in the past eight years.
Recently, Richard B. Evans, Alcan’s president and chief executive, ruled out the need for his company to grow bigger through an acquisition. He also expressed his deep disagreement for any hostile takeover of Alcan fearing it might jeopardize the company’s agreements with Quebec, which provides it discount rates for electricity, a major cost of producing aluminum. The specific terms of those arrangements are confidential, making it difficult to judge their potential impact, although the government has signaled that they require Alcan to maintain its headquarters in Montreal.
However, analysts feel that Alcoa and Alcan could not come to a meeting of minds after two years of discussions about some kind of combination; the companies are not quite the natural fit as it has been claimed. But the reason behind the takeover is Alcoa’s struggle to protect its independence. The two larger mining giants BHP Billiton PLC and Rio Tinto PLC, both London-based, have already disclosed in February to have each worked up feasibility plans for an Alcoa takeover.
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