Rio Tinto bids $44bn for Canadian aluminium group

RIO Tinto is poised to become the world's biggest aluminium producer after launching a $US38.1 billion ($44.23 billion) takeover for Alcan, which the Canadian aluminium group has recommended. The recommended offer of $US101 ($A117.26) per share trumps an earlier cash and scrip bid from Alcoa Inc of the US worth about $US28 billion ($A31.35 billion). If the takeover is successful, the new entity will be called Rio Tinto Alcan, and the pair have agreed to divest Alcan's packaging business. Rio Tinto chief executive Tom Albanese said the benefits of the deal will be felt in the first full year. “The acquisition will be value enhancing to shareholders, and we expect it to be earnings and cash flow per share accretive to Rio Tinto in the first full year,” he said. “Rio Tinto intends to retain its focus on mining and metals activities by the divestment of Alcan's Packaging division, as jointly agreed with Alcan. “The Engineered Products division will be retained with a focus on managing the portfolio for optimum value.” Rio Tinto Alcan will be based in Montreal and be led by current Alcan chief executive Dick Evans. The offer price represents a premium of 65.5 per cent to Alcan's all time high closing share price of $US61.03 ($A70.85) at May 4, before Alcoa's hostile offer. It also represents a premium of 32.8 per cent to the value of Alcoa's current scrip and cash offer of $US76.03 ($A88.27), based on Alcoa's closing share price on July 11. “This transaction combines two leading and complementary aluminium businesses, and is a further step in Rio Tinto's strategy of creating shareholder value through investing in high quality, large scale, low cost and long life assets in attractive sectors,” Rio Tinto chairman Paul Skinner said. “We believe that Alcan, with its proven operating expertise and unique set of competitively positioned aluminium assets and power sources, will be an excellent complement to our existing diversified portfolio. “It also adds to our significant presence in Quebec and Canada, where we have long standing operations in QIT-Fer et Titane, Iron Ore Company of Canada and Diavik Diamond Mines.” Rio Tinto says the new entity will be the world's largest producer of aluminium and bauxite, based on current production, with a defined pathway through the commissioning of Gove and the committed expansion of Yarwun to becoming the largest producer of alumina. “The acquisition of Alcan will position Rio Tinto to capitalise on the strong demand fundamentals of the aluminium sector,” Rio Tinto said. “The attractive physical properties of aluminium have ensured its use in a wide range of applications at all stages of economic development, including construction and infrastructure development, transportation, and consumer goods and packaging.” Expected after tax synergies from the transaction are forecast to be around $600 million per year. As far as the Australian operations are concerned, Rio Tinto said it “recognises Australia's strengths in bauxite extraction and alumina refinery operations and project development”. “It is committed to leveraging those strengths by locating the combined global Bauxite and Alumina business and associated research and development activities in Queensland,” it said. “As Rio Tinto and Alcan's assets in Australia are largely complementary, it is expected that the merger and integration will provide opportunities for cost synergies and revenue enhancement as a result of expansion of Australian output.” Alcan and Rio Tinto have put in place a substantial break fee to support the deal. The agreement provides for a break fee of around $US1.049 billion ($A1.22 billion) payable by Alcan to Rio Tinto. Rio Tinto will finance the offer with newly committed bank facilities underwritten by The Royal Bank of Scotland, Deutsche Bank, Credit Suisse, and Societe Generale, but the mining giant has stressed the offer is not conditional on financing. While Rio Tinto said its goal is to maintain a single A rating and its commitment to a progressive dividend policy will be maintained, the existing buyback programme will be discontinued. Rio Tinto's shares were placed in a trading halt before market close today, but last traded up $1.07 at $103.84, after hitting a new intraday high of $105.19 on speculation surrounding the possible offer.