Alcoa to Make Hostile Bid for Alcan

Dow component Alcoa says it will make a $27 billion hostile bid for Alcan after nearly two years of friendly discussions have failed to result in a deal. The $73.25 cash/stock bid ($58.60 in cash and 0.4108 of an Alcoa share) is a 32% premium to Alcan's average price over the last 30 days and 20% higher than Friday's close of $61.03. Alcoa says a merger would result in $1 billion savings per year. Alcoa CEO Alain J.P. Belda: "We believe firmly in the compelling strategic rationale behind the combination of Alcoa and Alcan and are convinced that this transaction creates substantial value for both sets of shareholders and for our customers around the world. We are therefore taking our offer directly to Alcan shareholders." He added he is frustrated that he was forced to go hostile with his bid. Alcoa is the world's #1 aluminum company by sales, and was the world's largest producer until March, when OAO Russian Aluminum merged with OAO Sual Group and the alumina assets of Glencore International; Rusal presently makes 4 million metric tons a year to Alcoa's 3.5 million. The deal will be subject to anti-trust scrutiny in countries including the U.S., Canada, the EU, Australia and Brazil, but Alcoa feels the obstacles can be overcome: "We believe that any antitrust issues raised by an Alcoa-Alcan combination can be solved through targeted divestitures and by proactively working with regulators to address competitive concerns." -- CEO Belda. Alcoa will begin its official offer on May 8, and hopes to complete the deal by the end of 2008. Alcoa shares are up 2.6% in pre-market trading; Alcan shares have jumped 25% to $76.30.

Sources: Press release, Reuters, Bloomberg, MarketWatch
Commentary: Alcan Shares Eclipse Alcoa's In Pre-Market Action On Takeover Bid • Tracking Money Flow in Materials Stocks • The Outlook for Alcoa and Aluminum • Take Alcoa Out of the DJIA
Stocks/ETFs to watch: Alcoa Inc. (AA), Alcan Inc. (AL). Competitors: Aluminum Corp. of China Ltd. (ACH), Novelis Inc. (NVL), Kaiser Aluminum Corp. (KALU), Quanex Corp. (NX), Tredegar Corp. (TG), Arcelor Mittal (MT). ETFs: SPDR Metals & Mining (XME), PowerShares FTSE RAFI Basic Materials ETF (PRFM), Vanguard Materials VIPERs (VAW)

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.