Alcan embraces Rio Tinto bid to avoid takeover by Alcoa

Anglo-Australian miner Rio Tinto Ltd. has agreed to buy Canada’s Alcan Inc. for US$38.1 billion to create the world’s biggest aluminum producer, the two firms said July 12.

Rio, the world’s second-biggest miner, said it would pay US$101 a share in cash, 13 percent above Alcan’s closing price in New York July 11 and 33 percent above a rival US$28.8 billion cash-and-shares bid for Alcan from U.S. group Alcoa Inc. (HNN 5/17/07)

Rio said the deal was unanimously recommended by Alcan’s board and would help it diversify from its strength in iron ore and copper, as well as boost its position in fast-growing aluminum markets. The two firms said they had also agreed a break fee of about US$1.05 billion.

Alcoa announced a unsolicited bid of US$58.60 in cash and 0.4108 shares for each Alcan share on May 8, which was rejected by Alcan as inadequate. Earlier this week, Alcoa secured a US$30 billion line of credit from its advisers, Goldman Sachs and Citigroup, fueling speculation it might improve its offer.

Pledges to Quebec must be maintained to keep hydropower

Alcan Chief Executive Dick Evans is to head the combined aluminum business, to be called Rio Tinto Alcan and based in Montreal, reporting to Rio Chief Executive Tom Albanese. However, the new group’s bauxite and alumina assets would be managed globally from Brisbane, Australia.

Quebec Economic Development Minister Raymond Bachand said he would examine Rio Tinto’s offer to ensure it meets a pact on employment and investment in the Canadian province. He said after meeting the chief executives of Rio Tinto and Alcan, he was reassured that Alcan’s head office would remain in Montreal and had no reason to doubt the companies’ good faith.

Rio Tinto has also said it would maintain Alcan’s commitment to invest some US$2 billion in Quebec expansion projects and adequately manage waterways on which it produces electricity for its smelters.

As part of a “continuity” pact struck between Quebec and Alcan in December, the company has 35-year contracts to buy hydropower cheaply from province-owned Hydro-Quebec. Those agreements hinge on Alcan meeting investment and employment targets in the province.

Alcan has six smelters and production capacity of 1.45 million tons of aluminum annually in Quebec. It also owns six hydroelectric stations in the province.

Alcan recently announced it is beginning engineering work to install a 225-MW high-efficiency turbine at its 896-MW Shipshaw hydro project in Quebec as part of a planned ten-year US$1.8 billion investment in the aluminum company’s facilities in Quebec’s Saguenay-Lac-Saint-Jean Region. (HNN 4/30/07)

In addition to hydro projects and aluminum operations in Quebec, Alcan owns and operates facilities in British Columbia, including the 896-MW Kemano hydroelectric project.

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