Alcoa Could Still Get Alcan With An Increased Offer

The events over the last week of May surrounding Alcan's (AL) rejection of Alcoa's (AA) merger proposal devolved into a soap opera-like situation. There really is no way to confidently predict an outcome, in terms of Alcan's future as a target or an acquiror, but one thing is fairly apparent: the door is certainly open for Alcoa if it will simply increase its offer to an acceptable level.

All of Alcan's real or perceived discussions with potential merger partners seems to geared more towards motivating Alcoa into an increased offer, rather than Alcan actually reaching an agreement with the various third parties that have been speculated. Given the fact that an Alcan-Alcoa merger makes much more strategic sense than the company combining with a non-North American entity, it is difficult to view the BHP Billiton, Rio Tinto, etc. discussions as serious events. In other words, Alcan is clearly playing the hard-to-get role, without being subtle about its interest in attempting to merger with Alcoa at the right offer price.

As always, Alcoa's claim that it will not increase its current offer can not be taken literally. It must be assumed that the company is at this time considering the next increase and can be expected to announce it at some point in the near future. However, it must be pointed out that there have been no substantial indications that another offer is imminent.

In order to get Alcan's interest, Alcoa needs to, and is surely capable of, raise the cash component of the offer above the $60 per share level. If it fails to do so, there really is no legitimate reason for Alcan to risk entering a merger agreement at this time.

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