Alcan seeks 'sweet spot' for packaging unit

As Alcan Inc. prepares to morph into Rio Tinto Alcan - a consequence of the largest takeover offer in Canadian history - it says it's seeking "the sweet spot" for the sale of its packaging unit. During what might be Alcan's last earnings conference call yesterday, Alcan chief executive officer Dick Evans said there has been "significant interest from both strategic buyers and private equity" in the packaging business. The company's objective is to find "the sweet spot" that combines timeliness and maximum value for Alcan, Evans said. "We will be making a determination soon as to whether we go ahead with an expedited process or whether that (divestiture) takes a little longer," Evans said. The company, which reports in U.S. dollars, said second-quarter profit dropped to $438 million, or $1.17 a share, from $455 million, or $1.21 a share, a year earlier. Alcan's board has recommended shareholders accept a $38.1-billion (U.S.) takeover by the British-Australian Rio Tinto Group. The all-cash offer of $101 U.S. a share, announced July 12, torpedoed a hostile takeover bid by Alcan's rival Alcoa Inc. In a bid to offset takeover costs, Alcan and Rio Tinto agreed to sell Alcan's specialized packaging group. While it is Alcan's smallest unit in terms of profits - $550 million in 2006 - the division is among the largest in terms of employees. About 500 Quebecers are among its 31,000 employees worldwide. Evans wouldn't say what price Alcan has pegged to the unit, but analyst expectations range between $3 billion and $6 billion U.S. Alcan's profits fell almost four per cent for the quarter ending June 30, largely because of currency costs - as the Canadian dollar gained ground - and increased energy costs. But quarterly operating earnings were the second highest in the company's history. Operating earnings for the quarter were $1.62 per share, compared with $1.48 a year ago and $1.67 in the first quarter of this year. Revenue climbed to $6.6 billion from $6.1 billion a year earlier. The Rio Tinto offer expires Sept. 24. Its takeover of Alcan is subject to regulatory approvals and approval by Rio Tinto shareholders at meetings expected late in the third quarter or early in the fourth quarter. If the approval process "moves expeditiously," as anticipated, yesterday's earnings report will have been the last for Alcan, said Evans, who will head the aluminum division of the combined company. In regulatory documents filed last week, stock options for Alcan executives were detailed. Evans holds more than 636,000 Alcan stock options, worth about $37 million if tendered. And he is to receive $8.1 million as part of a change-of-control provision. Evans said it would be "naive to think" executives would "knowingly violate their fiduciary responsibilities and not reflect the interest of shareholders." Stock-based compensation is aligned with shareholder interest, Evans said. He said that in his case, he accumulated stock options over about 10 years because he was a "strong believer" in Alcan's future and assumed it would remain an independent company. He also noted that Alcan's market capitalization moved from about $15 billion to about $35 billion in less than a year. When Alcan issued its second-quarter earnings last year, its stock closed at $53.22 on the TSX. Alcan stock rose one cent to close at $103.61 on the TSX yesterday.