Alcoa Takeover Bid Will Likely Weaken Alcan's Credit Rating

Alcan Inc.'s (AL) credit profile will likely weaken as a result of Alcoa Inc.'s (AA) hostile takeover bid for it, according to Gimme Credit analyst Carol Levenson.

“Our experience with hostile takeover battles for Canadian metals companies is that they tend to become increasingly more expensive with increasingly more borrowed cash offered,” she said in a note to clients.

“Even if a stronger credit enters the bidding for Alcan, it's likely to use a substantial amount of borrowed cash and thus it is unlikely to result in an improved credit profile for Alcan.”

She added that any attempt by Alcan to stay independent, including a counter bid for Alcoa, would also likely require significant leveraging action.

And what about Alcoa's credit rating as a result of the bid?

“Although there are many possible outcomes at this point, nearly all of them would result in a weaker credit profile.” Ms. Levenson wrote, adding Alcoa is more willing to push the “investment grade envelope,” if required to take up a defensive leveraging position.

Her credit score rating for both Alcoa and Alcan is “deteriorating.”