Montreal-based Alcan has begun merger negotiations with Rio Tinto plc in the hopes of fending off a hostile bid from U.S. rival Alcoa, according to a report in the Globe and Mail. Unnamed sources say Rio hired investment bank CIBC World Markets over the weekend to advise it on an Alcan merger. In a regulatory filing, Alcan said it "has undertaken negotiations concerning potential strategic transactions and alternatives to the Alcoa offer." Alcoa tabled its hostile takeover bid in early May after extended merger negotiations failed to produce a deal. An Alcoa/Alcan merger would create the number-one aluminum producer in the world. This week, Alcoa CEO Alain Belda said his company's offer is the best for Alcan, and that the combined entity could achieve over $1 billion in synergies. BHP Billiton is also said to have had discussions with Alcan, but sources say it is currently examining a potential Alcoa takeover. Both Rio and Alcan have strong Australian operations; Credit Suisse analyst Jeremy Gray estimates an Alcan acquisition could boost Rio Tinto's profits 7% by next year, with assumed cost savings of $200-250 million. Alcan spokeswoman Anik Michaud said Alcan is in talks with more than one party, and that "the discussions have moved to negotiations and, as the filing says, they have signed confidentiality and standstill agreements." Alcan shares are up 1.3% to $87.29 in pre-market trading; Rio Tinto ADRs have gained 0.8% to $317.93.
Sources: Globe and Mail
Commentary: Rio Tinto Hires Advisors in Possible White Knight Bid for Alcan -- Telegraph • Analysts Skeptical of BHP Bid for Alcoa, Alcan; Shares of All Three Rise • Alcoa Could Still Get Alcan With An Increased Offer
Stocks/ETFs to watch: Alcan Inc. (AL (defunct)), Rio Tinto plc (RTP), Alcoa Inc. (NYSE:AA)
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