Rio Tinto makes recommended offer for Alcan

It seems to have been a long time coming but all the recent speculation was confirmed this morning when Rio Tinto announced it is making a friendly $38.1 billion all-cash offer for Canada’s Alcan. The offer of US$101 per share represents a 32.8% premium to Alcoa’s offer of $76.03 per share, based on Alcoa’s share price yesterday. Unlike Alcoa’s hostile bid, Rio Tinto’s has the backing of Alcan’s board. The two companies have entered into a support agreement, including a mutual $1.049 billion break fee. The combined group, to be called Rio Tinto Alcan, will sell the Alcan packaging business but keep the engineered products business. As such it will be a marriage of the two companies’ upstream portfolios in the bauxite, alumina and aluminium sectors. The new entity will be headquartered in Canada—a key requisite of Alcan’s “continuity agreement” with the Canadian authorities—and will be led by current Alcan chief executive Dick Evans. Evans commented: “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.” All eyes will now turn to Alcoa to see what its reaction is. With other big names in the mining industry rumoured to be in the wings, it will want to avoid the “Inco” fate. That Canadian company launched a bid for Falconbridge, only to be gazumped by Xstrata before itself falling into the clutches of CVRD.