Alcoa Trumped By Rio Tinto’s Bid for Alcan Miner Offers Dollars- 38bn to Create World’s Largest Aluminium Firm

By PAUL ROGERSON CITY EDITOR

RIO Tinto yesterday unveiled an agreed dollars-38.1bn (GBP18.7bn) cash offer for Canada’s Alcan, trumping a hostile bid from rival mining giant Alcoa.

London-based Rio, the world’s second-largest mining company, said Alcan’s board had sanctioned the dollars-101-pershare bid, which constitutes a 32.8per cent premium to Alcan’s valuation at close of trading on Wednesday. The offer is 65per cent more than the company was worth on May 4, before US miner Alcoa offered dollars-76 per share. That bid was dismissed by Alcan’s board as inadequate.

If the offer succeeds, the world’s largest aluminium group will be created to capitalise on growing demand for the metal from China and India. The combined business, to be named Rio Tinto Alcan, will be based in Montreal and led by Dick Evans, Alcan’s chief executive.

Rio employs more than 1000 people in the UK at a smelting operation in Wales and at bases in London, Bristol and Guildford, Surrey. Alcan employs around 1600 people in the UK with smelting bases at Lochaber and at Lynemouth in Northumberland.

Rio Tinto’s aluminium division contributed less than 10per cent of the company’s net profit before the deal. Post-acquisition, that contribution will rise to 30per cent of the enlarged group’s profits.

Rio said the firms had agreed to sell Alcan’s non-core packaging business in a wider review of the combined group’s assets. Analysts believe this could fetch dollars-5bn and there was talk yesterday that a buyer has been lined up, with private equity firms likely to be in the running.

The two firms also hope to make around dollars-600m in cost savings by 2010, although Rio Tinto chief executive Tom Albanese played down fears of job cuts in the UK.

He said: “We have been expanding our UK presence – there won’t be any meaningful impact one way or the other.”

Alcan has 68,000 employees operating in 61 countries, while Rio Tinto employs around 34,000. Last year the two companies had combined revenues of more than GBP24.1bn.

“This transaction combines two leading and complementary aluminum businesses, and is a further step in Rio Tinto’s strategy of creating shareholder value through investing in high-quality, large- scale, low-cost and long-life assets in attractive sectors, ” Rio Tinto chairman Paul Skinner said in a statement.

Alcan chairman Yves Fortier said the offer was “very attractive” and offered shareholders “the certainty of a clear path to completion”.

“The agreed transaction with Rio Tinto is the outcome of a rigorous and thorough process conducted by the Alcan board, ” he added. “It achieves all of our stated goals, providing clearly superior value to Alcan shareholders while remaining true to our core values and obligations.”

Rio Tinto was the biggest faller on the FTSE-100 index, closing down nearly 5per cent, or 183p, at GBP38.10, as investors digested news of the all-cash deal, and some analysts voiced concerns about the amount of debt the company will need to assume to proceed.

The proposed tie-up buoyed fellow mining stocks, however, amid hopes for further consolidation in the sector. Vedanta Resources led the way, closing up more than 6per cent, or 109p, at 1800p.

ABN Amro analyst Rob Clifford speculated that Alcoa may try to top Rio Tinto’s bid, but faced a “big hurdle” because of the dollars- 1bn break fee for which Alcan would be liable. BHP Billiton, the world’s largest mining firm, could yet launch its own offer for Alcan, but is thought to be more interested in Alcoa. BHP has also been linked with a bid for Rio Tinto.

“Rio Tinto shares are trading lower due to reduced expectations for a large special dividend, reduced share buyback programme and reduced expectations for a potential takeover of Rio Tinto itself, ” Numis said in a research note.

(c) 2007 Herald, The; Glasgow (UK). Provided by ProQuest Information and Learning. All rights Reserved.