Analysts dismiss rumors of an Alcoa takeover

Fresh rumors that BHP Billiton Ltd. was preparing a takeover bid for either aluminum producer Alcoa Inc. or its rival Alcan had little impact Tuesday, as some analysts doused the idea with cold water.
BHP Billiton, the world's largest mining company, declined to comment on media reports citing unnamed sources that it was reviving plans for a $40 billion offer for Alcoa, and that it had hired investment bank Merrill Lynch to advise it on a possible bid for Alcan.

"We never comment on those sorts of market rumors," said Samantha Evans, a BHP spokeswoman at the company's base in Melbourne.

Alcoa shares fell 30 cents to $41.58 yesterday. The shares have risen 39 percent this year.

Gavin Wendt of market analysts Fat Prophets said neither BHP Billiton nor Rio Tinto, another Anglo-Australian mining giant, was likely to bid for Alcoa, and any bid for Alcan would face trouble.
Alcoa "is too big and it has too many downstream assets" that neither BHP or Rio is interested in, Wendt said. Alcoa Inc. is the world's second-biggest aluminum producer and Alcan Inc. is its Canadian rival.

Alcan is looking for help to fend off Alcoa's $27.4 billion hostile bid, but BHP was unlikely to be a white knight because it would not be able to extract the same value from a takeover as Alcoa could.

"Any bid that BHP could mount, Alcoa could top because there would be greater benefits flowing to them from a tie up," Wendt said.

"With the amount of cash flow BHP has, funding any bids isn't going to be a problem," said Paul Xiradis, who manages about $8.3 billion at Ausbil Dexia Ltd., in Sydney. "But I'm not convinced they would bid. There are other opportunities that would offer them better assets."

BHP would likely have to sell Alcoa's or Alcan's manufacturing assets after paying a premium for them, which would act as a deterrent to a takeover, said Rob Clifford, an analyst at ABN Amro Holding NV in Melbourne. The price of aluminum has lagged behind other metals, he said.

Southern Cross Equities director Angus Aitken dismissed reports of a BHP Billiton takeover bid for either company as "rubbish." There is no chance of a deal because BHP Billiton has no interest in the aluminum companies' downstream assets, Aitken said.

The world's largest aluminum producer is United Company Rusal, created in March in a three-way merger among Russian aluminum companies Rusal and Sual and the aluminum assets of Swiss-based commodities trader Glencore.