Rio Tinto Offers $38B for Alcan

By Rohan Sullivan Associated Press

SYDNEY, Australia — Mining giant Rio Tinto has offered to buy Canadian aluminum company Alcan Inc. for $38.1 billion in cash, the companies said Thursday, in a friendly takeover that tops a hostile bid by U.S.-based Alcoa.

The bid exceeds a $28 billion offer of cash and stock from Alcoa Inc. that Alcan’s board rejected in May, and would create the world’s largest aluminum company. Alcoa Inc. withdrew its offer on Thursday after being outbid.

Alcoa Chairman and CEO Alain Belda said Rio Tinto’s bid “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,” he said.

In a joint statement, Kennecott Utah Copper parent company Rio Tinto and Alcan said the Anglo-Australian miner was offering $101 per share for Alcan and that Alcan’s board was recommending the deal to shareholders.

“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.

Rio Tinto’s offer is a 65.5 percent premium on Alcan’s closing share price before Pittsburgh-based Alcoa’s May 4 takeover bid, and an almost 33 percent premium on Alcoa’s offer, the statement said.

The offer is subject to conditions including gaining the support of 66.67 percent of Alcan’s shareholders and a breakup fee of $1.05 billion payable by Alcan to Rio Tinto if Alcan pulls out.

Alcan’s U.S. shares climbed $8.85, or 9.9 percent, to $98.45 in Thursday’s trading in New York while Alcoa shares rose $2.86, or 6.7 percent, to $45.29.

Trading of Rio Tinto’s shares were halted in Sydney ahead of the announcement, but had earlier soared to a new record price of 105.19 Australian dollars ($90.58) as rumors swirled that a deal on Alcan was imminent. On the London Stock Exchange, where Rio Tinto’s shares are also traded, the price fell 2.5 percent after the announcement to 3,892 pence ($78.99).

Under the deal, a new company named Rio Tinto Alcan would be based in Montreal, Canada, that would be “a new global leader in the aluminum industry with large, long-life, low-cost assets worldwide,” the companies said. It would be headed by Alcan Chief Executive Dick Evans.

Alcan Chairman Yves Fortier said the Rio Tinto offer was “very attractive” and offered shareholders “the certainty of a clear path to completion” — a possible reference to antitrust concerns about Alcoa’s bid.

“The agreed transaction with Rio Tinto is the outcome of a rigorous and thorough process conducted by the Alcan board,” he said.

“It achieves all of our stated goals, providing clearly superior value to Alcan shareholders while remaining true to our core values and obligations as responsible corporate citizens,” he said.

Rio Tinto CEO Tom Albanese called aluminum an excellent business to be in because of increasing demand from China.

“The outlook for the sector is very strong,” Albanese said. “World demand is expected to grow at more than 6 percent per year through 2011. … We’ve seen China’s demand for steel, for copper and for aluminum ramping up in recent years.”

ABN Amro analyst Rob Clifford told Dow Jones Newswires Alcoa faced a “big hurdle” because of the breakup fee Alcan would be liable for if it had pushed ahead with the bidding.

Others noted synergies between the two companies and said Rio Tinto would likely consolidate operations after the takeover.

“This is a major deal that’s been clearly flagged to the market and a very good way for Rio to use its forecast cash pile,” said Numis Securities analyst John Meyer, predicting that Rio Tinto would “be quick to sell off some of the downstream operations.”

Rio Tinto has its Australian base in the southern city of Melbourne and is currently the world’s eighth-largest aluminum maker, producing roughly 820,000 tons of aluminum products each year. It is also the world’s second-biggest iron ore producer.

(c) 2007 Deseret News (Salt Lake City). Provided by ProQuest Information and Learning. All rights Reserved.