Rio Tinto emerges as white knight, strikes deal for Alcan

LONDON - Anglo-Australian mining giant Rio Tinto struck a deal Thursday to buy Canada's Alcan, outbidding US rival Alcoa in a mammoth move that would create the world's largest aluminium company. The all-cash offer of 38.1 billion dollars (27.6 billion euros) prompted Alcoa to drop its its hostile 33-billion-dollar cash-and-stock bid, saying it would not match Rio Tinto's price. The tie-up between Rio Tinto and Alcan, which has won the backing of Alcan management, would represent the biggest-ever acquisition in the fast-moving global mining and metals industry, analysts 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," Rio Tinto chairman Paul Skinner said. "It also adds to our significant presence in Quebec and Canada." The new company to be called Rio Tinto Alcan would be based in Montreal. The transaction, which remains subject to regulatory and shareholder approvals, was expected to be completed in the fourth quarter of 2007. Alcan's board of directors unanimously recommended acceptance of the offer, Rio Tinto and Alcan said in a joint statement. Rio Tinto emerged as the white knight as Alcan was fending off the hostile bid from Alcoa, announced May 7. Alcoa said in a statement after the close of New York financial markets that it was dropping its bid to pursue other interests and would not compete against Rio Tinto. "Rio's offer for Alcan strongly reinforces our view of the underlying value in the aluminum industry and its bright prospects for the future," said Alcoa chairman and chief executive Alain Belda. "However, at this price level, we have more attractive options for delivering additional value to shareholders." Analysts said Rio Tinto's all-cash offer was designed to get in ahead of BHP Billiton, the world's biggest miner, which could yet throw its hat into the ring for Alcan. Among the other companies that have been named as possible suitors for Alcan are Brazil's CVRD and Anglo-Swiss company Xstrata. In Canada, Alcan president and chief executive Dick Evans told AFP he did not expect another bidder. "It is always possible that an interloper could come in with an another bid. (But) we think this is by far the best combination and the best bid. Therefore we doubt that there will be a counter bid," he said. The acquisition was expected to increase pressure on Alcoa and BHP Billiton to enter the race to consolidate and gain scale in order to take full advantage of record metals prices fuelled by unprecedented demand from China. "It's all about the China story, then watch India. The three metals that you can associate with the Chinese economic growth are steel, copper and aluminium," Rio Tinto chief executive Tom Albanese told reporters. Executives said Alcan was an excellent fit with Rio Tinto and that the merger would generate savings synergies worth 600 million dollars a year. Rio Tinto is headquartered in Britain and includes the Australian-listed Rio Tinto Limited. It has activities in aluminium, copper, diamonds, coal, uranium, gold and industrial minerals. It has operations in Australia, North America, South America, Asia, Europe and southern Africa. The new Montreal-based entity will be the world's top aluminium producer ahead of Russia's United Company RUSAL and Alcoa and will be led by current Alcan chief executive Dick Evans. Alcan and Rio Tinto said they had agreed on a 1.049 billion-dollar breakup fee if the deal fell through, to be paid by either party under certain circumstances. Alcan chairman Yves Fortier said the board had conducted a thorough evaluation of Rio Tinto's offer, as well competing bids, and that it offered "Alcan shareholders the certainty of a clear path to completion." The companies said they would focus firmly on mining and metals activities by selling Alcan's packaging division for several billion dollars.