Rio Tinto Tops Alcoa’s Bid for Alcan;
Alcoa Seen as Next Acquisition Target
Later in the day on July 12, Alcoa withdrew its offer for Alcan. Alcoa Chairman and CEO Alain Belda said, “Rio’s offer for Alcan strongly reinforces our view of the underlying value in the aluminum industry and its bright prospects for the future. However, at this price level, we have more attractive options for delivering additional value to shareholders.”
Rio Tinto was not expected to see a competitive bid for Alcan. Closure of the purchase is targeted for the fourth quarter of 2007.
Speculation that BHP Billiton and possibly CVRD would bid for Alcoa surfaced almost immediately, with suggestions that offers could be in the range of $50 billion. On July 14, The Times (London) reported that, “Hedge fund investors have taken large positions in Alcoa in recent months as speculation mounts that it will become a target for one of the large mining groups. A number of these shareholders have told The Times that they are demanding meetings with Alcoa executives to force the company into a deal.”
Combined revenues of Rio Tinto and Alcan in 2006 totaled $46.1 billion, well above the $33.1 billion reported by Anglo American, which was the mining industry’s leading revenue producer during the year. Combined revenues of BHP Billiton and Alcoa during 2006 totaled $63.2 billion, so a combination of those two companies would raise the bar for revenue leadership in the industry to yet a new level.
Assuming closure of its purchase of Alcan, Rio Tinto expects to form a combined aluminum products group called Rio Tinto Alcan, which would be headquartered in Montreal, Canada. Current Alcan CEO Dick Evans would head the group. Rio Tinto intends to retain its focus on mining and metals activities by the divestment of Alcan’s Packaging division, as jointly agreed with Alcan.
Rio Tinto Alcan would be a global aluminum industry leader in bauxite, alumina, power, aluminum metal, and technology. It would have a strong pipeline of growth projects. Not factoring in a possible combination of BHP Billiton and Alcoa, it would be the largest global producer of bauxite and primary aluminum, based on current production; and with the commissioning of Gove and the committed expansion of Yarwun, both in Australia, it would have the potential to become the world’s leading producer of alumina.
For Rio Tinto, the acquisition of Alcan would provide a marked commodity diversification. In 2006, aluminum accounted for 10% of its EBITDA, while copper accounted for 40% and iron ore accounted for 30%. A pro forma combination of the companies’ 2006 data shows bauxite, alumina, and primary aluminum accounting for 25% of EBITDA and downstream aluminum minus Alcan Packaging accounting for 7%. Copper’s contribution to EBITDA would be reduced to 30%, and iron ore’s contribution would be reduced to 23%.