Alcoa Concedes Alcan; Traders Think It Could Be Next

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

Alcoa Inc. announced Thursday it has withdrawn its $27 billion hostile bid for Alcan Inc. following Rio Tinto's higher offer, bringing to a close its two-year attempt to acquire the company. AA 13 07 2007 ChartRio's bid, worth $38.1 billion ($101/share), was a third higher than Alcoa's $28.8 billion ($76.03/share). "[A]t this price level," said Alcoa CEO Alain Belda, "we have more attractive options for delivering additional value to shareholders." Alcoa will now restart its share buyback program, which it suspended May 7 when it submitted its bid. Alcan finished Thursday's session up almost 9% at $98.45 following news of Rio's bid. Shares of Alcoa also closed up 6.7% and tacked on another 1.6% in AH trading on speculation that it will now be taken over. "The deal rips Alcan from the jaws of Alcoa in what had become a nasty spat," said Interactive Brokers Group market analyst Andrew Wilkinson. "Traders are now focused on the likelihood of a bid from Australian mineral producer, BHP Billiton." Other possible suitors include CVRD or Xstrata plc. A total of 259,552 Alcoa calls and 55,738 Alcoa puts were traded Thursday, well beyond Alcoa's normal options volume of 64,948 contracts all together.

Sources: MarketWatch, Bloomberg, Reuters, Wall Street Journal
Commentary: Alcan Acquiesces To Cash Deal With Rio TintoRio Tinto Trumps Alcoa with $38.1 Billion Offer for AlcanAlcan, Rio Tinto Engaged in Formal Merger Negotiations
Stocks/ETFs to watch: Alcoa Inc. (NYSE:AA), Alcan Inc. (NYSE:AL), Rio Tinto plc [ADR] (RTP), BHP Billiton Limited [ADR] (NYSE:BHP), Companhia Vale do Rio Doce [ADR] (NYSE:RIO). ETFs: Materials Select Sector SPDR (NYSEARCA:XLB), iShares Dow Jones US Basic Materials Index (NYSEARCA:IYM), Vanguard Materials VIPERs (NYSEARCA:VAW)
Earnings call transcripts: Alcoa Q2 2007

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