Alcoa-Alcan: Together again?
By Tom Stundza -- Purchasing, 5/9/2007 2:30:00 PM
If Alcoa's hostile bid for fellow North American aluminum producer Alcan succeeds, the merged company would be “a formidable force” in primary aluminum supply, says a report yesterday by Barclays Capital’s London nonferrous metals group.
Alcoa and Alcan have been struggling to maintain their place in the market, and both companies had been floated as possible takeover bait. Alcoa's $33 billion hostile bid for rival producer Alcan would give the combined company a 20% share of aluminum production and reunite two firms that were split up 79 years ago because of antitrust issues. Since the company was broken up, the industry landscape has changed dramatically. Aluminum demand soared in recent years, and prices have climbed higher.
Aluminum ingots these days are selling for less than their record price set last July but still selling at a strong $1.27/lb this week on the London Metal Exchange due to the strong demand for aluminum sheets, bars and other products in emerging markets. There has been buyout frenzy in the commodity world, but the Wall Street Journal reports this possible merger “raises tough questions for antitrust regulators about how big is too big in an increasingly global market.” Given the size of the two North American companies, a deal is expected to draw scrutiny from regulators, the Washington Post says, so Alcoa might have sell off assets to win approval. However, those analysts who favor the merger say the emergence of a raft of new aluminum players from Russia, the Middle East, China and India could reduce antitrust concerns about one large North American firm.
Analyst Mike Gambardella at J.P, Morgan Securities in New York thinks the merger attempt “will draw out other bidders for both Alcoa and Alcan in the coming weeks.” Gambardella writes clients that “Alcan clearly is in play but we also believe Alcoa has put themselves in play” and he suggests that “a strategic buyer (and/or an activist shareholder) is likely pushing Alcoa to do this deal.” The Sydney Morning Herald says the move could spark a bidding war from such global miners as BHP Billiton, Rio Tinto, CVRD, Anglo American and Xstrata.
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