BHP Billiton declines comment on talk of Alcoa bid, analysts say it is possible

SYDNEY - BHP Billiton declined to comment on reports that it is considering making a 50 billion US dollar takeover bid for Alcoa Inc, a move that would top Rio Tinto's 38.1 billion dollar offer for Canadian aluminium group Alcan Inc announced last week, but analysts said it is a possibility. Analysts said Alcoa's decision to drop its 28 billion dollar offer for Alcan when Rio Tinto stepped in as a "white knight" last Thursday means the US alumina and aluminium giant is now a potential target. A Melbourne-based spokeswoman for BHP Billiton said it was her group's policy not to comment on merger and acquisition speculation. Nor would she comment on reports that BHP Billiton has briefed Merrill Lynch on its interest in pursuing Alcoa. ABN Amro resources analyst Warren Edney said the global alumina and aluminium sector's ownership was clearly in play as the world's largest miners seek to utilise strong cash flow resulting from high commodity prices to fund future growth. "(Alcoa) may be a better (acquisition) than Alcan because of its alumina refining capacity," Edney said. He said a BHP Billiton bid for Alcoa may involve private equity players as there are downstream aluminium components of Alcoa that the world's largest diversified miner would not want such as Alcoa's aluminium sidings business. "Any combination is possible and you can't rule out CVRD being involved," Edney said, referring to Brazilian mining giant Companhia Vale do Rio Doce, another potential acquirer of Alcoa. Only time will tell whether BHP Billiton will make a bid for Alcoa and also possibly seek to acquire Australian-listed Alumina Ltd, said Peter O'Connor, resources analyst at Credit Suisse. Alumina is Alcoa's 40 percent partner in the Alcoa World Alumina & Chemical joint venture which operates some of the world's lowest cost alumina refineries, including refineries in Western Australia. O'Connor said a full cash offer of around 50 dollars a share for Alcoa would increase BHP Billiton's gearing to 63 percent from just 18 percent a year ago. But, he said, asset sales and strong cash flow of about 12 billion dollars a year could reduce BHP Billiton's gearing to 41 percent by 2009, which makes an offer financially possible.