Alcoa Stays Put on Alcan Bid, Shares Surge on Bid War Speculation

Alcoa said late Wednesday it would not raise its $27.6 billion, $74.60/share (as of May 22 close) offer to acquire rival aluminum maker Alcan ($58.60 in cash and 0.4108 of a share), saying they have "already met with a significant number of Alcan’s shareholders and are pleased to have received strong support for the combination." The price represents a 35% on Alcan's average share price 30-days prior to the offer, and a 22% premium on its May 4 close (its all-time high) before the offer was announced. Late Tuesday, Alcan urged shareholders to reject Alcoa's offer, calling it too low, and because the merger was unsettled due to regulatory and other hurdles. There was speculation Alcoa might respond with a higher offer. Analysts expect the effort will attract rival bids from other global miners such as BHP Billiton, Rio Tinto, CVRD and Anglo American. BHP recently said it was interested in "the upstream part of the value chain where sustainable supplies of low cost bauxite and power are key considerations;" Alcan has low-cost power, while Alcoa has low-cost bauxite (used to make aluminum), according to the Wall Street Journal. BHP is considered a front-runner, although some consultants say a bid would meet significant regulatory concerns. Anglo CEO Cynthia Carroll was a senior Alcan executive before joining the company. Investors are guessing Alcoa's (presently) $75.18 bid will be a starting point for any future overtures. Alcoa shares were up 3.7% to $40.37 Wednesday; Alcan shares jumped 6% to $85.89.

Sources: Press release, Wall Street Journal, MarketWatch
Commentary: Alcan Rejected Marriage Proposal; Now Alcoa Has Something to Prove • UBS: Alcan Worth More Than Alcoa Offering • Alcan's Board Advises Rejecting Alcoa's Bid; BHP in Talks with Alcan -- report
Stocks/ETFs to watch: Alcoa Inc. (AA), Alcan Inc. (AL), Rio Tinto plc (RTP), BHP Billiton Limited (BHP), Anglo American plc ADR (AAUK), Companhia Vale do Rio Doce (RIO). ETFs: Vanguard Materials VIPERs (VAW), iShares Dow Jones US Basic Materials Index (IYM), PowerShares FTSE RAFI Basic Materials ETF (PRFM)
Conference call transcript: Alcoa Q1 2007

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