In the midst of market and media speculation over potential additional takeover offers for Montreal-based aluminum producer Alcan, a merger with original bidder Pittsburgh-based Alcoa has the most strategic rationale and would create greater synergies, said analyst Simon Toyne.
In early May, Alcoa launched a bid for Alcan worth US$33bn in enterprise value.
Soon after, reports by Canadian newspaper Globe and Mail said Norway's Norsk Hydro is preparing a US$30bn bid for Alcan, while Australia's Sydney Morning Herald reported BHP Billiton and Rio Tinto are also considering making offers.
Once Alcoa's bid put Alcan into play, "it would be natural that all the biggest companies in the world would run their slide rule over it and work out whether an evaluation would make sense," Toyne, a mining analyst with London-based Numis Securities, told BNamericas.
"Reports that BHP Billiton and Rio Tinto are considering bidding should not be taken to mean that they are actually going to bid, it is natural that they would be evaluating it," he added.
Spokespersons for Rio Tinto and Hydro told BNamericas that their companies do not comment on speculation about potential transactions.
STRATEGIC FIT
Although an Alcan merger with BHP Billiton, Rio Tinto or Norsk Hydro would certainly produce synergies, the analyst believes that Alcoa and Alcan seem like a natural fit, both being major North American aluminum companies with some global assets.
"Alcoa reckons that there would be US$1bn in synergies. I'd be quite surprised if there would be that order of synergies with any other companies," he said.
In addition, an Alcoa-Alcan combination would have the advantage of maintaining pure play status and as such a competitive position in the global aluminum market.
After the recent merger of Russian firms Sural and Rusal that created the world's biggest aluminum company, "it's natural that you get some consolidation in the Western world to compete with that and therefore assets like Alcoa and Alcan have a certain strategic value," said Toyne.
OFFER PRICE
Alcan's board of directors has recommended that shareholders reject the bid, saying it does not offer an adequate premium and is subject to "significant risks and uncertainties."
Although Alcoa responded that its bid "is driven by unquestionable logic" and did not plan to reevaluate the offer, Toyne believes the US company will likely be forced to increase its price.
"Alcan share prices are a decent way ahead of Alcoa's bid," he said.
Alcoa offered US$58.60 in cash and 0.41 of an Alcoa common share for each outstanding Alcan common share. The Canadian company's stock was trading at US$86.86 on the NYSE Tuesday afternoon, while Alcoa was at US$40.31.
In Latin America, Pittsburgh-based Alcoa has bauxite and aluminum operations in Brazil, as well as important assets in Mexico, Trinidad & Tobago, Jamaica and Venezuela, while Alcan operates in Brazil, Venezuela, Ecuador, Argentina and Chile.
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