BHP Bid for Alcoa Looks More Likely

Includes: AA, BHP
by: Jim Kingsland

According to articles that appeared in both The Times of London, and The Guardian, over the weekend, it's looking like BHP Billiton Ltd. (NYSE:BHP) will make an offer of up to $50 bln for Alcoa (NYSE:AA).

I suspect the Guardian report has it's numbers slightly out of whack. I can't imagine a take-under scenario for AA, and that it's more likely BHP would make an offer at a premium especially in light of the shareholder activist element that the Times of London focuses upon.

Friedman Billings is saying $49, and on Friday, JP Morgan (one of BHP's advisors), mentioned $51 a share as a likely target following a sum of the parts analysis. Bear Stearns (NYSE:BSC) said $52, and Credit Suisse (NYSE:CS) is saying $55 to $59. I remain skeptical about CRVD being able to jump into a deal with this type of sticker on the window, but never say never.

Activist shareholders could make a big difference in how this situation plays out. They certainly aren't in the mood for a bid with a modest premium from BHP.

If Alcoa management were smart, which they aren't, you'd almost be tempted to think they cooked up the Alcan bid - knowing they would lose, but also knowing it would lift valuations in the whole sector, including their market cap. But, no. that would be too ingenious for the Alain Belda-led, AA. They have unwittingly opened the door to a huge takeover of the company, and much to the great benefit of their long suffering shareholders.