Alcoa's actions may catch Justice's eye
Even with the latest aluminum industry megamergers, primary aluminum capacity will keep rising, forecasts the International Primary Aluminum Institute. The IPAI says primary aluminum smelting capacity is expected to near 22.6 million tonnes by the end of 2001 from the 21.4 million tonnes of capacity in 1998, even if some planned megamergers reduce the number of global players. Meanwhile, the IPAI projects alumina production capacity will rise sharply in coming years, rising to 53.013 million tonnes by mid-2
By Staff -- Purchasing, 10/7/1999
Alcoa's buyout of Reynolds Metals may trigger intensified regulatory review worldwide of aluminum industry restructuring, including the planned three-way merger by French, Swiss, and Canadian metal companies. "The risks associated with regulatory approval of the Alcan-Pechiney-Algroup merger are certainly raised with the coinciding bid by Alcoa for Reynolds," says H. Fraser Phillips at Deutsche Bank Securities in Toronto.In a nutshell, Alcoa's annual smelting capacity in the U.S. went from 1,285,000 metric tons, (31% of U.S. capacity) to 1,942,500 tonnes (46% of U.S. capacity) when it absorbed Alumax last July. Acquiring Reynolds would push total capacity to 2,390,500 annual tonnes, or almost 57% of total U.S. capacity. The buyout would give Alcoa control of Reynolds' Canadian operations as well, giving the company 3,304,000 tonnes of annual primary aluminum capacity in North America. That's about 10% more than current total Russian capacity and roughly equal to total capacity in the entire Commonwealth of Independent States.
Alcoa has a storied history with U.S. antitrust enforcers, who succeeded in having the courts declare the aluminum maker a monopoly in 1945. After World War II, the company was ordered to sell a number of plants to competitors as well as Alcan, the company's Canadian operation. And last year, Alcoa agreed to sell cast-plate plants to win Justice Department approval of its $3.8 billion purchase of Alumax; otherwise, Alcoa would have controlled 90% of U.S. cast-plate production. (Ironically, the new owner of the former Alcoa cast-plate plant in California is Pechiney, who just bought it from Century Aluminum.)
Still, while it's possible that regulators are very concerned about Alcoa gaining monopoly power, "they might instead see the mergers as balancing each other," says Vahid Fathi, an analyst with ABN AMRO in Chicago. He says that "one megamerger would have stuck out like a sore thumb, but the landscape now has two mountains."
Alcoa appears to agree with Fathi. "We do not see this to be a real concern to the Justice Department," Alcoa CEO Alain Belda told analysts and journalists in a telephone conference call. "We do not believe there is any significant issue here any longer" because of the wave of nonferrous and steel industry consolidations worldwide.
Justice says it likely will do a "normal review" of the Alcoa-Reynolds transaction, but wouldn't comment on a possible review of the European-Canadian merger (which is under review by the European Union). Still, Justice is in a position to challenge both mergers because the European companies do business in the U.S. and the new Alcan-Pechiney-Algroup combination is scheduled to be headquartered in New York.
Talkback
Related Content
Related Content
Sponsored Links
View All Blogs
Now Playing:
