Alcoa Shares Gain on Report BHP, Rio Planning Bids

Feb. 13 -- Shares of Alcoa Inc., the world's largest aluminum producer, rose after a report BHP Billiton Ltd. and Rio Tinto Group are planning takeover bids.

Melbourne-based BHP, the world's biggest mining company, and Rio have independently drawn up plans for a $40 billion takeover of New York-based Alcoa, The Times of London said, citing unidentified people. The three companies declined to comment today on the report. Aluminum is used in making beverage cans, aircraft and auto parts.

Demand from China for commodities such as aluminum has driven record profits for BHP and Rio, who both said this month they are continuing to look at potential acquisitions. A five-year rally in metals spurred more than $157 billion of takeovers and merger proposals last year in the mining industry.

"Both BHP and Rio are well positioned from a capital perspective to make acquisitions," said Atul Lele, who helps manage $360 million at White Funds Management in Sydney, including BHP, Rio and Alumina Ltd. stock. "Both companies should be interested in expanding and making aluminum a bigger part of their portfolio."

Alcoa shares, which are trading at 11 times forecast earnings, gained $3.07, or 9.3 percent, to $35.97 in after-hours trading. The last time the shares had a bigger gain in regular trading was Dec. 22, 2000, when they rose 9.6 percent.

Shares of Melbourne-based Alumina, a partner with Alcoa in the world's biggest alumina producer, rose 40 cents, or 5.9 percent to A$7.23 on the Australian Stock Exchange at the 4:10 p.m. close of trade in Sydney. Shares of BHP and Rio in Australia both fell.

'Market Rumors'

Alcoa doesn't "comment on rumors as a policy," company spokesman Kevin Lowery said over the phone from Pittsburgh. BHP "doesn't comment on market rumor or speculation," spokeswoman Emma Meade said today in Melbourne. "We don't comment on market rumors or speculation," Ian Head, a Rio spokesman said from Melbourne. Alumina Chief Executive Officer John Marlay declined to comment.

Aluminum for delivery in three months rose $3, or 0.1 percent, to $2,710 a metric ton on the London Metal Exchange at 3:59 p.m. Sydney time. The metal has fallen 13 percent since reaching its highest in at least 19 years last May.

OAO Russian Aluminium, also known as Rusal, won European Union approval this month to buy OAO Sual Group to create the world's biggest aluminum company by output. Rusal agreed in October to buy Sual and aluminum assets owned by Swiss trader Glencore International AG in a $30 billion deal.

'Less Diversfied'

Rio has been criticized for becoming less diversified and relying on copper and iron ore for earnings, Mark Pervan, head of research at Daiwa Securities SMBC said in a note today. On preliminary analysis, buying Alcoa would increase Rio's 2007 earnings from aluminum to about 35 percent of total earnings before interest and tax, from about 9 percent, the report said.

"BHP doesn't need to do the deal -- it has plenty of internal growth options and is returning $13 billion to shareholders in buybacks currently," Daiwa's Pervan said. 'Rio on the other hand, is returning nothing to shareholders, has a stronger balance sheet and has less internal growth options."

China Demand

Global demand for alumina and aluminum is expected to "grow strongly" in 2007, with China, the world's fastest growing major economy, likely needing at least 14 percent more of the light metal, Alumina said this month. China is the world's top user and producer of aluminum.

Alcoa and Alcan Inc. had their share rating raised by Citigroup Inc. to "buy" from "hold" because of a "stronger" outlook for the price of the metal. Aluminum prices are "ticking higher," after "badly lagging" behind other nonferrous metals, such as copper, Citigroup said in a Feb. 7 report.

BHP, the world's largest mining com