Rio Tinto’s Alcan Bid A Knockout, And Meant To Be

Rio Tinto’s $38.1 billion “knockout bid” for Canada’s Alcan was intended to be just that, to eliminate competition from the auction process, the company’s finance director, Guy Elliott, told Dow Jones Newswires Friday. “It is a knockout bid and it was intended to be,” Elliott said. “There was a public offer from Alcoa, which has since been withdrawn, but there were a number of other parties interested in Alcan - this was made very clear to us,” he added. The deal - which analysts say will be extremely difficult for another firm to counter - will catapult Rio Tinto into top position for its aluminum and bauxite production, and clear the path for it to be the number one in alumina once expansion projects come onstream. Alcan’s board has unanimously recommended acceptance of the offer, and Alcoa withdrew its own $27.94 billion hostile bid. Despite criticism from industry analysts that the deal will push Rio’s gearing to around 60%, Elliott said the company is confident this will come down rapidly. “There’s a strong cash generation of $1 billion a month within Rio (due to high commodity prices) and this will continue,” Elliott said. “On top of this, we’ve set out clearly our intentions for the disposal of Alcan’s packaging business and we’re going to review the whole combined portfolio of the new company and undertake sales of assets and businesses within our own and Alcan’s operations,” he said. Rio Tinto intends to deal with the disposal of any assets “with sensitivity,” Elliott said. “With engineered products, we’ve said we’ll retain that business and review how we can achieve maximum value in those businesses.” Alcan’s packaging business encompasses operations in 150 locations worldwide, while its engineered products division has 118 locations across the globe.