Dec. 15 (Bloomberg) -- Alcan Inc. Chief Executive Officer Dick Evans said plans to invest $1.8 billion in aluminum projects in Quebec after securing preferential terms from the province aren't a ``poison pill' designed to stop a takeover.
The investment to boost aluminum output in northern Quebec by 450,000 tons, backed in part by an interest-free loan from the province and the extension of power contracts, will give Montreal-based Alcan ``attractive returns,'' Evans, 59, said yesterday in an interview in Saguenay, Quebec.
Alcan has secured a 30-year $335 million interest-free loan from Quebec, power contracts extending until 2045 with province- owned utility Hydro-Quebec, and $100 million of tax benefits to back plans to expand aluminum production in Quebec's northern Saguenay-Lac-Saint-Jean region. The province said yesterday it may cancel the benefits if Alcan is taken over.
``It's a matter of the Quebec government having committed loans and electricity and wanting to ensure there is a return on their investment,'' Evans said. ``The value of the deal is worth substantially more to our shareholders than the perceived poison pill for a company that has had no takeover premium in the stock.''
Quebec may cancel ``all or some of the benefits'' if Alcan is taken over or changes the location of its headquarters, which would have ``a negative impact on the company's positive commitment to or presence in Quebec,'' the government said yesterday.
Takeover Speculation
As many as 975 mining mergers and acquisitions worth more than $157 billion have been proposed this year, according to data compiled by Bloomberg.
Speculation that Alcan was a possible target accelerated after the Australian Financial Review reported May 30 that Rio Tinto may be interested in buying the company, without saying where it got the information. Toronto's Globe and Mail newspaper also reported a day later that Rio Tinto and BHP were considering bids, citing an unidentified investment banker.
``We need to work to ensure that Alcan invests here,'' Quebec Premier Jean Charest said yesterday at a press conference. ``We are in a long-term relationship and have worked to encourage Alcan to maintain its office in Montreal. Alcan has been a good steward of our natural resources,'' he said. Takeover speculation was ``for the market,'' he said.
Pilot Project
Alcan is building a $550 million pilot plant in Jonquiere, Quebec, that will produce 60,000 metric tons, using new AP50 technology that is designed to cut power use. It's the first part of the 10-year project in the Saguenay-Lac-Saint-Jean region.
``Separate from this agreement, there is a much bigger commitment to Quebec in terms of power rights we have and proprietary rights we have'' Evans said. ``That is an issue that would surface under any condition if there were a change of control.''
Shares of Alcan fell 75 cents, or 1.3 percent, to C$57.50 at 4:22 p.m. on the Toronto Stock Exchange. They have gained 20 percent this year.
Quebec is extending a 342-megawatt power contract to 2045 from 2023. The province also agreed to extend Alcan's existing water rights on the Peribonca River until 2058, a lease which supports 900 megawatts of self-generated power.
Prices Surge
Aluminum prices jumped in May to the highest in at least 19 years as global economic growth spurred demand for industrial metals. Alcan is building and expanding smelters in countries from South Africa to Canada amid rising consumption of aluminum, used in automobiles, the aerospace industry and beverage cans.
The regional project in Quebec will create 740 jobs and as many as 1,500 related to construction, Alcan said.
Construction of the pilot plant will begin in 2008. Production is scheduled to start in late 2010, the company said.
Alcan's third-quarter profit soared more than fivefold as prices rallied. Aluminum fell $61, or 2.1 percent, to $2,803 a metric ton on the London Metal Ex
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