Rio-Alcan Deal Pressures Alcoa

Trumped by a much higher and friendly bid, Alcoa rescinded its hostile tender offer for rival aluminum maker Alcan, raising speculation that it would seek other partners or become the target of a takeover itself. Alcoa’s stock price rose almost 7% yesterday to $45.29 in New York Stock Exchange composite trading, contributing to a big rise in the Dow Jones Industrial Average and giving it a market capitalization of $39.5 billion. Although Alcoa and its chairman, Alain Belda, said the company plans to stand alone, industry observers questioned that strategy given the rapid consolidation in the industry and the increasing importance of heft in the mining-and-metals sector. “Alcoa certainly looks like the fish flopping on the beach right now,” said John Anton, a steel analyst at research firm Global Insight. It also increases scrutiny on Australia’s Rio Tinto, which agreed to buy Alcan for $38.1 billion, and new Chief Executive Tom Albanese. The deal marks a departure from the company’s traditionally conservative image and represents a bet that the fouryear global commodities boom has legs. But some analysts and industry observers called the price and multiples Rio Tinto offered for Alcan “stratospheric” and suggested Alcoa was wise to back away from bidding any higher. The deal ends a two-year effort by Alcoa to court its Canadian rival and amounts to a major disappointment for Belda.When initial efforts to do a deal on a friendly basis failed, Alcoa made a hostile, roughly $28 billion cash-and-stock offer for Alcan. Belda said in a statement that Rio’s offer for Alcan “strongly reinforces our view of the underlying value in the aluminum industry and its bright prospects for the future.” With few other acquisition targets in the aluminum space of such a size and scope, Alcoa is at a crossroads. “They are stuck out [there] on their own,” says John Mothersole, a metals analyst at Global Insight Industry Practice.