Despite Reports of International Bidders Alcoa Best Fit for Alcan
By Romina Maurino
28 May 2007 at 06:43 PM GMT-04:00
resourceinvestor.com
TORONTO (CP) -- Despite speculation that two big international miners may be preparing bids for Canada's Alcan Inc. [TSX:AL; NYSE:AL], analysts say the best strategic fit for the company would be an increased offer by Alcoa Inc [NYSE:AA].
Reports out of Australia suggested Monday that Anglo-Australian mining company Rio Tinto PLC [NYSE:RTP] may be considering a US$27 billion-plus bid for Alcan Inc.
Meanwhile, the Globe and Mail, quoting investment bankers, reported Norsk Hydro ASA [NYSE:NHY] of Norway was preparing a US$30-billion-plus bid for Alcan.
Yet despite the spectre of new bidders, analysts say the most likely and useful offer would probably come from U.S. competitor Alcoa - even though Alcan's board urged shareholders to reject a hostile US$27 billion cash-and-shares offer from Alcoa as too low. The company has also said that completion of the merger was uncertain due to regulatory and other hurdles.
''The logical fit is the Alcoa but I don't think the (current) bid is going to win it,'' said Ian Nakamoto, director of research at the MacDougall, MacDougall and MacTier Inc. brokerage.
''There is a lot of synergies there and if they both exited their downstream operations, I think it would be a very attractive company with the two companies, just in (their) production of aluminium.''
Alcan also has access to low-cost power through their hydro-electric operations in Quebec, whereas Alcoa's production is much more oil-intensive.
''If one believes in the high energy prices staying here for a while, Alcan has that competitive advantage over Alcoa and that's why they're not going to go cheaply,'' Nakamoto said.
Charles Bradford, an analyst with the New-York based Soleil Securities, also said advantages to tie-up include mixing Alcoa's strong upstream section with Alcan's superiors smelters.
He said it would be ''impossible'' to guess how much Alcan would eventually sell for, but like many others, believes the company will ultimately be acquired.
''All these guys have some deep pockets or the availability of getting money,'' he said.
''It's pretty clear that Alcoa has a lot of unused fire power - they have a new borrowing of US$30 billion, which is only partially used by their original bid, so in effect, they could go a lot higher.''
Australia's BHP Billiton Ltd.'s [NYSE:BHP], Anglo American PLC [Nasdaq:AAUK], Xstrata PLC [LSE:XTA] and CVRD [NYSE:RIO] are all possible bidders, although those companies may be deterred by lack of synergies and by Alcoa's financial reserves, Bradford said.
He said why do it ''if you know that somebody else is going to beat your bid no matter what you come up with.''
Alcoa has said it was sticking to its offer, arguing management has already met with a significant number of Alcan's shareholders and had received strong support.
In turn, Alcan has not ruled out the option of buying Alcoa, and has said it is in talks with third parties about other options.
Nakamoto said the a merger between Alcan and Rio Tinto or BHP wouldn't provide as many synergies as a takeover by Alcoa.
Those two companies are also unlikely to be interested in Alcan's low-profit downstream operations.
According the The Sydney Morning Herald, Rio Tinto has hired Deutsche Bank to advise it on a possible bid for Alcan.
The newspaper didn't cite any sources, and Rio Tinto, BHP Billiton and Deutsche Bank all declined to comment on the report, calling it speculative.
The rumoured Norsk Hydro deal ''does make sense,'' Nakamoto said, since that company is ''in the aluminum business in a relatively big way.''
''I think a lot of companies may be looking at the fact that if Alcoa and Alcan do get together, what's it going to mean to them,'' Nakamoto said.
''They'll be sort of marginalized in terms of the aluminum business.''
The Alcoa deal would create the world's fifth-largest metals producer, with 46 smelters and other operations generating sales of more than US$54 billion and 188,000 employees in 67 countries.
Rio Tinto is a leading mining and exploration company with operations in Africa, Asia, Europe and the Americas.
Norsk Hydro is based in Norway and operates 13 oil and gas installations around the world. Its aluminum business has 26,000 employees in 28 countries, producing 1.8 million tonnes of primary aluminium in 2005.
Talk of a possible Rio Tinto-Alcan deal comes amid a wave of speculation about consolidation in the booming global resource sector, including the C$6.3 billion takeover battle for Canadian-based nickel producer LionOre between Xstrata and Russia's OAO Norilsk Nickel.
One of the few big remaining Canadian miners is Vancouver's Teck-Cominco Ltd. [TSX:TCK.B; NYSE:TCK], the world's biggest zinc miner.
Analysts say it's unlikely Teck Cominco would become a Canadian white knight for Alcan, since aluminum is not one of their core strengths and there are no synergies with Alcan.
''[Canadian miners like Teck] are way too tiny,'' Bradford said. ''They're babies. This is a game for big boys.''
Shares in Alcan closed up C$2.60 or almost 3% to C$94.25 on the TSX Monday, with 1.7 million shares changing hands.
© The Canadian Press 2007 |
