Mining group Rio Tinto launches $38.1 billion bid for Alcan

LONDON - Anglo-Australian miner Rio Tinto launched a 38.1-billion-dollar offer for Canada's Alcan on Thursday, trumping US rival Alcoa in a mammoth bid to create the world's largest aluminium company. The proposed offer, which has won the backing of Alcan management and was worth the equivalent of 27.6 billion euros, would represent the biggest-ever acquisition in the fast-moving global mining industry, analysts said. As consolidation in the booming metals sector continues, Rio Tinto and Alcan said in a joint statement they would combine to form Rio Tinto Alcan, which would be based in Montreal. The transaction, which remains subject to regulatory and shareholder approvals, was expected to complete in the fourth quarter of 2007. "Alcan's board of directors unanimously recommends acceptance of the offer," the statement said, noting the 101 dollar a share offer was 32.8 percent higher than Alcoa's offer and 65.5 percent higher than Alcan's record closing price. Analysts said the all-cash offer was designed to get in ahead of BHP Billiton, the world's biggest miner who could yet throw its hat into the ring for Alcan. "This is almost certainly a knock-out bid, and I'll be surprised if Alcoa comes back with a counter offer," Teather and Greenwood mining analyst Martin Potts said in London. "If Rio succeeds with this deal then I think it takes them basically out of play for the time being and I can't see BHP coming in at these levels." 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 aluminum," Rio Tinto chief executive Tom Albanese told reporters. "It will be value accretive for our shareholders in the first year and there will certainly be benefits for the host countries, in Canada, Australia and France." Rio Tinto said Alcan was an excellent fit with its operations, estimating the merger would generate savings synergies worth 600 million dollars a year. "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," chairman Paul Skinner said. The announcement came shortly after trading in Rio Tinto shares were suspended with the stock up 1.07 Australian dollars (92 US cents) at 103.84 dollars. It reached an all-time high of 105.19 dollars earlier in the session on takeover speculation. In London deals, however, Rio Tinto stock fell 0.98 percent to 3,954 pence in afternoon trade. The ratings agency Standard and Poor's said it was considering a downward revision in its long- and short-term debt ratings on Rio Tinto if the purchase went ahead at 38.1 billion dollars. It said the combined group could face increased financial risks if metals prices were to fall. 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. "With an attractive cost position bolstered by a strong technology portfolio, complementary refining and smelting assets, and a strong growth pipeline, the combination of Rio Tinto and Alcan will create a new global leader in the aluminium industry," Evans said. Alcan and Rio Tinto said they had agreed on a 1.049 billion dollar "break 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.