Rio Tinto Trumps Alcoa with $38.1 Billion Offer for Alcan

Includes: AA, AL (defunct), RIO
by: Judith Levy

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 AA Chart-7-11-2007 16 RTP Chart-7-11-2007 20slipping 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 MailRio Tinto Hires Advisors in Possible White Knight Bid for Alcan -- TelegraphAlcan and Alcoa Takeover Speculation Continues
Stocks/ETFs to watch: Rio Tinto plc [ADR] (RTP), Alcoa Inc. (NYSE:AA), Alcan Inc. (AL (defunct)). ETFs: Materials Select Sector SPDR (NYSEARCA:XLB), iShares Dow Jones US Basic Materials Index (NYSEARCA:IYM), Vanguard Materials VIPERs (NYSEARCA:VAW)

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