Rio Tinto snatches Alcan
The bidding war is over. Angle-Australian mining company Rio Tinto Group is the acquirer, Canada-based Alcan is the acquiree, and the big loser is US-based Alcoa. The final deal is $38 billion, a bid that far outshines Alcoa's previous (hostile) offer. Alcoa announced it has withdrawn its bid.
The newly combined aluminum operations (to be named Rio Tinto Alcan) will be the #1 bauxite miner and aluminum producer in the world. (Rio Tinto already had mining operations for the metal, about a fourth of the size of Alcan's. Alcoa, meanwhile, will slip to #2 (after Russia's Rusal. Rio Tinto plans top sell off Alcan's packaging division and other non-core segments of the business. The deal is expected to avoid the antitrust issues that an Alcoa-Alcan merger would have attracted,
Aluminum is booming, with expected demand growth of up to 8% this year. And it may have room for even bigger increases, thanks to Chinese demand. A Wall Street Journal article ("Rio Tinto Agrees to Buy Alcan, Thwarting Alcoa Hostile Bid" 7/12/07) quotes one analyst as saying:
One of the things that attracts people to aluminum is that it hasn't had the big runup that copper has had...Historically, the two trade together. I'd rather place my bets on the product that hasn't had the big run rather than on the product that has.
Rio Tinto, like other top mining companies, has accumulated a massive war chest, thanks to enormous profits from iron ore and copper. But it has, up until now, stayed out of the mining bidding wars that rivals have been engaged in for the past few years.
A Bloomberg article ("Alcoa Withdraws Alcan Bid as Rio Tinto Offers More," 7/12/07) quotes another analyst as saying:
Alcoa never really had a chance once one of the big guys got involved,…What was Alcoa going to do? Get involved in a bidding war with Rio, which is just so much bigger? It would be like bringing a knife to a gunfight.
It's not quite over even yet, despite a $1 billion deal breakup fee. Rio Tinto's rivals, BHP Billiton and CVRD are still circling the water. But the real target now for those companies may be Alcoa itself, and rumors have BHP Billiton bidding $40 billion to buy out the American company.
Bloomberg reports that there have been over $106 billion in proposed mining and metals deals already this year. And Canadian-based companies have been the biggest targets.
