Alcoa makes $33B US hostile bid for Alcan

After negotiations failed to produce a merger, New York-based Alcoa Inc. launched a hostile takeover bid Monday for Alcan Inc. of Montreal.

If it succeeds, the takeover would be the biggest in a series of deals that have seen foreign companies target Canadian companies — especially resource firms — in the last few years.

Alcoa is offering $58.60 US in cash plus 0.4108 of one of its shares for each Alcan share.

The offer values Alcan at $73.25 US a share, 20 per cent above Alcan's May 4 all-time closing high in New York of $61.03 US.

Not surprisingly, Alcan shares soared on heavy trading in Toronto and New York Monday. They ended the trading day at $90.57 on the TSX, up $23.02. In NYSE trading, they gained $21.08 US to a close of $82.11 US.

That's well above the offer price — signifying that investors think the Alcoa bid will eventually be sweetened or another offer will emerge.

Alcan told its shareholders to not make any moves and to wait for the company to analyze Alcoa's offer and issue a formal response.

Alcoa's cash and share offer is worth about $27 billion US. The $33 billion US total includes assumed debt.

Following two years of discussion, the two companies had board-level negotiations last fall about a merger but were not able to reach an agreement, Alcoa chairman and CEO Alain Belda said.

"We are very disappointed that those efforts did not result in a negotiated transaction — a conclusion we would have strongly preferred," Belda said in a statement.

"We believe firmly in the compelling strategic rationale behind the
combination of Alcoa and Alcan and are convinced that this transaction creates substantial value for both sets of shareholders and for our customers around the world. We are therefore taking our offer directly to Alcan shareholders," he said.

During a press conference in Montreal, Belda deferred to Alcan when
pressed by journalists why mergers talks failed last November.

B.C., Quebec boost

If its bid is successful, Alcoa said it is committed to growing the combined company's presence in Canada, especially in Quebec and British Columbia.

Alcoa said it would transfer some head office functions to Alcan's Montreal base.

Montreal would also become the merged company's headquarters for its primary products, including bauxite, energy, alumina and aluminum operations, as well as related research and development.

"As a stand-alone company, the primary products business would be the largest aluminum company in the world and larger than Alcan is today, with $32 billion US in 2006 revenues and approximately 38,000 employees in 29 countries around the world, ranking among the largest businesses in Canada," Alcoa said.

Based on 2006 figures, the combined company would have had revenues of $54 billion US and EBITDA of $9.5 billion US, before synergies. Alcoa expects a united company could save about $1 billion US in annual costs by the third year after the deal closes.

The combined company's alumina capacity would have been approximately 21.5 million tonnes in 2006 and its aluminum capacity would have been approximately 7.8 million tonnes. In addition, the combined company would have approximately 188,000 employees in 67 countries.

An Alcan-Alcoa merger would face numerous regulatory hurdles, including foreign investment clearance in Canada, France and Australia, plus antitrust authorization in Canada, the United States, Europe, Australia and Brazil.

Belda told reporters he was confident of getting regulatory approval with minimal changes.