Four sets of investment bankers are now working the phones, trying to sell global mining companies on the concept of plunking down $30-billion (U.S.) for Alcan.
Want to know how those pitches are going, and who is getting the calls?
Well, the four dealers - Morgan Stanley, UBS Investment Bank, JPMorgan and RBC Dominion Securities - have each taken responsibility for contacting CEOs at the world's top commodity plays. Their opening line is stolen from the telemarketing types: "Hey, how would YOU like to be NUMBER ONE in ALUMINUM!"
Assuming the CEO in question doesn't hang up, the Alcan pitch begins - great company, low-cost producer, owning it makes you a bigger stud than Chip Goodyear at BHP Billiton, currently the top dog in global mining. The banker calling Chip will simply explain that soon-to-retire chief of BHP Billiton has to do this deal, or be considered a sissy.
And what are mining CEOs saying as they get these calls? The refrain is going to be the same: Don't love the metal, Alcan is a play on power, not a commodity, and my board hates contested takeovers. But then they are going to sigh, heavily, and ask for a chance to conduct their due diligence, on both Alcan and Alcoa. Because no rival can pass up a once-in-a-generation opportunity to buy a market leader.
Who is lining up?
Alcoa is still the logical buyer, though obviously it will have to pay far more than its opening bid of $73.25 in cash and shares. The greatest cost-cutting potential and sales synergies would come from reuniting these two companies, which were split in the 1920s. But other companies are going to do their best to get between this pair. Put a 30-per-cent chance on Aloca ultimately winning the day.
Handicapping the rest of the pack, here are the companies that are currently getting a call, ranked from the most likely to the least:
BHP Billiton - The world's biggest mining company is, by its own admission, only the No. 6 player in aluminum. Mr. Goodyear has long coveted Alcan but has been unable to engage the board or CEO Dick Evans in any meaningful merger discussions. It will be much easier to have that conversation now. So put the odds of BHP Billiton triumphing at 30 per cent, too.
Norske Hydro - The Norwegian company focuses on energy and aluminum, and has a unique advantage if it decides to push for the top of the mining heap. With the government of Norway as a 44-per-cent shareholder, and that country awash in North Sea oil money that needs to be redeployed, there is built-in funding for a large takeover. Norske Hydro sports a $45-billion market capitalization. Give them a 15-per-cent chance of winning.
Rio Tinto - Depending on the source of the speculation and time of day, Rio Tinto is either too worried about being taken out itself to look at Alcan or fixated on buying the Canadian company as a defensive move. With little exposure to aluminum, there are no synergies here, though the acquisition is apparently being considered. Put Rio Tinto's odds at 10 per cent.
Rusal - As Norilsk Nickel just proved, the Russian mining companies want to play on the global stage and will go hostile to get there. Rusal is the world's biggest aluminum producer, so it would have regulatory issues in bidding, but it has resources and ambition to step up. Give them a 5-per-cent chance.
CVRD - After swallowing Inco last year, Brazil's Companhia Vale do Rio Doce bills itself as the second largest mining company in the world. While it has global heft in nickel, CVRD is a second-tier player in aluminum, which accounted for just 8.5 per cent of last year's $7.7-billion in revenue. The Brazilians paid top dollar to dominate nickel, but aluminum isn't as sexy. So give them a 5-per-cent chance.
Anglo American - Last year, they poached an Alcan executive, Cynthia Carroll, as their new CEO. She would be reaching to do this acquisition when Anglo American is still getting its own house in order, but she does know the company. Anglo is one of our outs
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