Alcoa Says It May Increase $27.7 Billion Alcan Bid

Alcoa Inc., the world's second-largest aluminum company, said it may be willing to increase its hostile $27.7 billion bid for Alcan Inc. as it seeks to fend off rising competition from aluminum producers in Russia and China.

Alcoa Chief Executive Officer Alain Belda told Alcan CEO Richard Evans in a June 28 e-mail he was "ready to consider value for your shareholders beyond that reflected in our outstanding offer," if justified by financial data that Alcan has yet to provide, New York-based Alcoa said today in a regulatory filing.

Belda is trying to overcome Alcan's opposition to a merger that would create the world's largest aluminum company and fend off competition from emerging-market producers such as Russia's United Co. Rusal. Acquiring Alcan would give Alcoa cheaper power supplies for its smelters and access to 3.5 million tons of aluminum capacity a year in countries from Australia to Iceland.

"I'd still put high odds on these two companies coming together," said Charles Bradford, an analyst at Soleil Securities Inc. in New York. "The management that is being attacked has to yell and scream to get the best price for their shareholders, and it may not be pretty, but coming together makes the best sense."

Alcan shares rose C$1.93, or 2.2 percent, to C$88.83 in Toronto Stock Exchange trading. The shares have gained 56 percent this year. Shares of Alcoa rose 41 cents, or 1 percent, to $41.50 in New York Stock Exchange composite trading.

Denied Access

Alcoa said in the filing that it has been denied access to a so-called data room that may exist for rival bidders and could be used to determine "whether additional value for Alcan's shareholders might be unlocked." Alcoa said May 23 its $75.66 per-share offer was "full and fair" and wouldn't be increased.

Alcan, based in Montreal, urged shareholders to reject Alcoa's cash-and-stock bid on May 22, saying it doesn't reflect the value of the company or offer enough of a premium. Evans said Alcan was holding talks with other suitors after two years of negotiations with Belda on a potential combination broke down.

"Alcoa had two years to make a compelling offer and never did," Alcan spokeswoman Anik Michaud said in an interview today. "Alcoa chose to take this offer directly to our shareholders, and the Alcan board has unanimously rejected the offer. We're continuing to pursue other alternatives." Michaud declined to give more details.

Alcan Rejection

Evans said in a June 27 e-mail to Belda that Alcan saw "no reason to engage in further discussions or correspondence," after Alcoa proposed a meeting in Montreal to discuss potential confidentiality agreements, according to the filing.

"It's probably 90 percent posturing, but there's a real ugly tone in the correspondence that makes the possibility of a friendly deal even more remote and the likelihood of a higher, all-cash deal even higher," Carol Levenson, research director at New York-based Gimme Credit, said today in a note to investors.

Alcoa lost its lead as the world's biggest aluminum producer after OAO Russian Aluminium completed a three-way merger in March to become Rusal.

Alcan has opened a data room to BHP Billiton Ltd. and Rio Tinto Plc, the Sydney Morning Herald reported June 19, without saying where it got the information. A data room allows potential acquirers to gather information that may not be in the public domain and helps companies value potential targets.

Rio today approved a $1.8 billion expansion of its Yarwun alumina refinery in Australia's Queensland state, suggesting that the company may not pursue a bid for Alcan, Soleil's Bradford said. The expansion will more than double Yarwun's output of the silvery powder used to make aluminum, Rio said.

'Maximized Value'

"The only way you can be confident that you have maximized value for your shareholders and achieved a transaction that i