Rio Tinto says Alcan offer reflects faith in the aluminium industry

SYDNEY - Rio Tinto said Thursday its recommended takeover offer for Alcan Inc comes at a time of strong demand for aluminium underpinned by demand from China and more recently, India. The group's chief executive Tom Albanese said in a conference call the group expects the acquisition to be earnings accretive in its first year after the divestment of Alcan's packaging division. He said the group believes that aluminiun demand is strong enough to support Rio Tinto's increased exposure to the industry by paying a premium for Alcan. "The demand outlook for the next 10 years is quite positive with expected world demand growth to 2011 of over six percent and demand growth in China alone of over 15 percent per year," Albanese said. Albanese was speaking after Rio Tinto made a recommended all cash offer of 38.1 billion US dollar bid for Canadian based Alcan Inc, trumping a 28.8 billion dollar offer from Alcoa Inc which included Alcoa shares. Rio Tinto is offering 101 US dollars per common share compared with Alcoa's offer of 76.03 US dollars a share "I think this is a very competitive price and one that Alcan's board has endorsed," he said. He said the increased size of the group will also see a strategic review of all Rio Tinto assets with the possible divestment of smaller assets, including its St James Square head office in London. The takeover will see the creation of a new company, Rio Tinto Alcan, headquartered in Montreal, Canada, that will be run by Alcan chief executive Dick Evans. Rio Tinto, which already has alumina and aluminium assets, largely in Australia, said it expects to save about 600 million dollars in annual cost savings through the meger. It said the deal will be financed by newly committed bank facilities and it expects to maintain its "A" credit rating. London-based Numis Securities said if the offer is successful, it believes the deal will be 10-12 percent earnings per share accretive in 2008 for Rio Tinto. "The deal helps balance Rio's portfolio, reducing copper and iron ore's share of earnings, while offering a new suite of growth options," Numis said in a research note. Albanese said the business will be a leader in the aluminium business. "We're offering Alcan shareholders an attractive premium," Albanese said. "We strongly believe in the quality of the combined assets". The company admitted there had been an auction for Alcan following Alcoa's hostile offer but there is value involved in combining Rio Tinto with Alcan. Rio Tinto finance director Guy Elliot said Rio Tinto had decided to make an all cash offer to differentiate itself from the Alcoa offer. "Cash is king at the moment -- it does raise our gearing but our cashflow is strong - about 1 billion dollars a month," Elliot said.