Rio Tinto Trumps Alcoa with $38.1 Billion Offer for Alcan

Mining giant Rio Tinto announced Thursday it is offering $38.1 billion in cash, or $101 per share, for Canada's Alcan Inc. That bid is 32.8% higher than a hostile offer from Alcoa of $28.8 billion, or $76.03 per share. Alcan's board of directors is unanimously recommending that shareholders accept the Rio offer. The new bid represents a 65.5% premium to Alcan's all-time high prior to Alcoa's hostile offer and a 13% premium to Wednesday's close. The combined company will be called Rio Tinto Alcan. The deal is expected to result in after-tax synergies of about $600 million. Should Alcan elect not to complete the transaction, it will owe Rio a $1.05 billion breakup fee. According to Bloomberg, the acquisition will increase Rio's annual aluminum output by a factor of four, to 4.3 million tons -- enough to make 195,454 Boeing 787s. "Rio recognizes that it needs to increase its size, as it has been slipping in terms of market cap relative to others," said commodity strategist Peter Richardson. Aluminum will amount to 32% of Rio's 2008 earnings after the acquisition, up from 9% in 2006, according to Credit Suisse analysts.

Sources: Dow Jones, Bloomberg, Reuters, MarketWatch
Commentary: Alcan in Negotiations with Rio Tinto -- Globe and Mail • Rio Tinto Hires Advisors in Possible White Knight Bid for Alcan -- Telegraph • Alcan and Alcoa Takeover Speculation Continues
Stocks/ETFs to watch: Rio Tinto plc [ADR] (RTP), Alcoa Inc. (AA), Alcan Inc. (AL). ETFs: Materials Select Sector SPDR (XLB), iShares Dow Jones US Basic Materials Index (IYM), Vanguard Materials VIPERs (VAW)

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