Alcoa Unit Surges On Bid Talk From BHP, Rio Tinto

MELBOURNE--Shares in Alumina Ltd. (AWC.AU), the Australian partner of Alcoa Inc. (AA), surged more than 6% Tuesday due to market speculation that the U.S. aluminum giant might become a US$40 billion target of BHP Billiton (BHP) or Rio Tinto Plc. (RTP).

A bid for Alcoa would be the biggest deal yet in a series of mergers and acquisitions in the mining industry, which BHP and Rio Tinto have so far chosen not to participate in.

Both of the miners said they would not comment on the speculation, spurred by an unsourced report in the Times newspaper in London, which pushed Alcoa's shares 9.4% higher in after-hours U.S. trade.

Shares in joint venture partner Alumina were 5.7% higher at A$7.22 in afternoon trade on the Australian Stock Exchange, off a morning peak of A$7.40.

But analysts doubt a bid is pending, noting Alcoa's downstream assets are not of interest to the miners while the outlook for aluminum prices is not as strong as for other commodities.

"I think the downstream assets make it all too hard to be honest - I don't put any credence in these rumors," Morgan Stanley analyst Craig Campbell said.

Rumors of a BHP or Rio Tinto takeover have been surfacing regularly in the past 12 months and one analyst, who did not want to be named, said that although unlikely it couldn't be ruled out.

"You can mount an argument that if you buy Alcoa at the right level and you can divest some of its downstream assets you are arguably getting one of the best alumina businesses in the world," he said.

Stock Resource analyst Steve Bartrop said BHP's existing Australian aluminum assets could see the miner face anti-trust issues if it made a bid for Alcoa.

Bartrop said there is little benefit for BHP in investing in Alcoa's U.S. aluminum smelting operations when it has its own low cost operations in Mozambique, South Africa and Brazil.

"It doesn't make much sense to buy higher cost smelters in the U.S. even with the proximity to market," he said.

The Times newspaper also reported that Alcoa has drawn up a list of potential new chief executives and that BHP executives feature prominently.

BHP chief executive Chip Goodyear is reported to be on the list as are his possible successors, executive directors Chris Lynch and Marius Kloppers, it said.