Rio Tinto, the world’s second-largest miner, emphatically demonstrated its determination to buy Alcan yesterday with a $38.1 billion (£18.8 billion) offer for the Canadian aluminium producer, $10 billion more than its rival bidder.
The $101-per-share deal stunned analysts and shareholders on Wall Street and in the City. It is 38 per cent more than the $73 being offered by Alcan’s North American rival Alcoa, and 66 per cent higher than Alcan’s share price two months ago.
The board of Alcan has already agreed the bid and the friendly deal is subject to a $1 billion break fee should the Canadians seek another buyer. Rio will wait to see if Alcoa, CVRD, the Brazilian miner, or BHP Billiton decide to turn this into a bidding war. Alcan shareholders said yesterday that they did not expect this, as the $101 all-cash deal is considered nearly unbeatable.
“It’s going to be very difficult for any other parties to put together an all-cash deal to match this,” one shareholder said. “Alcan’s share price has dipped below the offer price, suggesting that the market thinks no alternative is coming.”
Tom Albanese, the chief executive of Rio Tinto, was confident the deal would succeed. “I think this is a very compelling offer,” he told The Times. “I think the Alcan board recognise that and they have wholeheartedly endorsed it.”
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It is more likely that BHP and CVRD will start preparing a $40 billion-plus offer for Alcoa, the Pittsburgh-based producer. Sources close to BHP said informal talks have been held between the Anglo-Australian miner and Alain Belda, Alcoa’s chief executive, over the past year. BHP is also understood to have approached private equity firms to negotiate a partnership — Blackstone Group is the favoured candidate.
The Times reported in February that BHP and Rio were eyeing acquisitions in the aluminium sector, initially Alcoa, and in recent months both companies appointed bankers to advise on potential deals.
On Tuesday, Alcan confirmed that it was talking to a white-knight bidder to block Alcoa. The major mining companies, such as BHP and Rio, are looking to expand their aluminium operations because the metal’s price has soared 55 per cent over the past two years. Demand is growing at 7.7 per cent a year owing to Chinese industrialisation. Despite this, Alcoa and Alcan have come under pressure from cheap metal produced in Russia. Electricity is vital to the smelting of aluminium and Rusal, the world’s largest producer, has access to cheap Siberian hydro-power. China is also ramping up production using cheap electricity from its coal-fired power stations.
Alcoa and Alcan discussed a cost-cutting merger last year. When this failed, Alcoa launched a hostile bid, which analysts said yesterday had been a last gamble to prevent the company being bought by CVRD or BHP. In fending off Alcoa, Alcan has been forced to surrender its autonomy. But the acquisition by Rio will allow the enlarged company, Rio Tinto Alcan, to overtake Rusal as the world’s largest aluminium producer. Alcan was previously third and Rio, which has a smelter on Anglesey, Wales, was seventh.
Rio Tinto Alcan will also be the world’s largest producer of bauxite, the raw material used to make aluminium. The deal is being financed by a $40 billion credit facility from Royal Bank of Scotland, Deutsche Bank, Credit Suisse and Soci?t? G?n?rale. There are forecast to be $600 million a year in savings. Revenues for the enlarged Rio Tinto will jump from $25.4 billion to $49 billion, based on 2006 figures.