For a company known for its conservatism when it comes to acquisitions, Rio Tinto has certainly learnt how to kill off the competition when it gets round to making one. Today’s staggering $38.1 billion bid for Alcan — a $10 billion premium to Alcoa’s offer — prevents its rival even thinking about coming back to the table.
A $1 billion break-fee agreed by Rio and Alcan is also likely to scare off Rio’s larger rivals such as BHP Billiton and Brazil’s CVRD and Russia’s Rusal.
Despite the high premium, Rio’s acquisition will be welcomed in the City. It makes Rio the world’s biggest producer of aluminium and gives the group 17 per cent of the market for bauxite, the ore used in aluminium production.
Rio management expects the deal to be earnings enhancing in 2008, the first full year following completion.
Tom Albanese, Rio chief executive, said Alcan puts the group in an exceptional position to benefit from “the China story” — and this reflects why Rio feels so confident about paying up for its target.
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Bets on the “supercycle” — the belief that surging demand from the big four rapidly-industrialising economies will keep metals prices stronger for longer — do not come bigger than this.