Translated material
Another "number 1"
Aluminum corporations staged a race for leadership
Perhaps the primacy of the United Russian Aluminum Company , recently created as a result of the merger of RUSAL, SUAL and the alumina assets of the Swiss Glencore, in the global aluminum industry will end just before it began. Yesterday, one of the industry leaders in the production of primary aluminum, the American corporation Alcoa, made an offer to purchase its main competitor - Canadian Alcan. In terms of production volume and main financial indicators, the companies are almost on par. At the end of last year, the production of primary aluminum by Alcoa enterprises amounted to 3.55 million tons, Alcan - 3.4 million tons. The net profit of the American company in 2006 reached $2.6 billion, revenue - $30.4 billion. For Canadians, these figures were $1.8 billion and $23.7 billion, respectively.Alcoa's offer is highly beneficial for Alcan shareholders. The American company is offering $58.60 in cash and 0.4108 of its own shares per share of its competitor. The transaction amount for shares will thus be $26.9 billion. Taking into account the obligations assumed on Alcan’s external debt, the acquisition of the Canadian company will cost Alcoa $33 billion. The proposed price gives a 32% premium to the average price of shares of the Canadian giant over the last month and 20% to their price on the day of trading on the eve of the announcement of the offer. The offer is valid from today until July 10, and can be extended.
However, Alcan is in no hurry to make decisions. The company's board of directors "will review the proposal and determine how it may impact the interests of Alcan shareholders and other stakeholders," the company said in a statement. Pending a decision on the proposal by Alcoa and a recommendation thereon by Alcan's board of directors, the company advises its shareholders to refrain from taking any independent action in this regard. However, the number of shareholders of Alcan, like most Western public companies, is, according to the latest announced data, 17 thousand (among them individuals, financial institutions, pension funds, etc.), and there are no large or even a controlling shareholder. This could make things easier for Alcoa if a simple majority of Alcan shareholders find the offer profitable.
News of Alcoa's intentions warmed up the market yesterday. Shares of the Canadian company already at the beginning of trading on this news rose in price by as much as 20.7%, to $82.6, and the American company - by 6.5%, to $38, compared to the closing price on Friday.
Alcoa CEO Alan Belda held a series of press conferences and speeches to investors explaining the details of the takeover. He complained that it was not possible to reach an “agreed solution” with Alcan, which had been in negotiations for several months. He said his company is confident that the combination will “create significant value for shareholders of both parties and our customers around the world. We are therefore making proposals directly to Alcan shareholders.” Alcoa expects that the synergistic effect from the merger in monetary terms alone will provide benefits of $1 billion annually. According to the head of Alcoa, the deal is planned to be closed by the end of this year.
Alcoa does not expect any obstacles from the antitrust authorities of the countries affected by the deal. Mr. Belda said the company has already received preliminary confirmation from antitrust officials in Canada and the United States - both companies' main base countries - that the deal will be approved. Alcoa also announced Monday that it has received financing approval for the deal from Citigroup, Goldman Sachs Credit Partners LP and Goldman Sachs Canada Credit Partners Co. Citigroup, Goldman, Sachs & Co., BMO Capital Markets and Lehman Brothers will act as financial advisors to the transaction. To avoid offending Alcan shareholders, Alcoa management says the combined company will have two main offices - one in New York, where the American company is currently headquartered, and the other in Montreal, where Alcan management sits.
It cannot be ruled out that Alcoa’s decision to resort to a unilateral takeover of the Canadian company was inspired by the example of the Russian merger in the aluminum industry, which was completed a month ago. The company did not want to give up its leadership to Russian Aluminum. When asked by Vremya Novostey whether RUSAL would try to come up with a counter offer to purchase Alcan and outbid Alcoa’s offer, the official representative of the Russian company Vera Kurochkina replied: “We are studying various options for the development of the company.” But for now, apparently, Russian Aluminum will take a wait-and-see approach. “We will be following developments with interest regarding Alcoa's intention to acquire Alcan. As for UC RUSAL (“United Company “Russian Aluminum.” - Ed. ), we are relying on the development of the company as an energy and metallurgical company and maintaining high growth dynamics, considering opportunities for further diversification of the business,” said Ms. Kurochkina .
It can be assumed that other world leaders in metallurgy and the mining industry will also enter the fight for leadership in the aluminum industry. For a long time now, the market has been agitated by rumors that such giants of the mining and metallurgical complex as the British-Australian BHP Billiton and Rio Tinto, which are superior to Alcoa in financial capabilities, have been eyeing both Alcan and Alcoa itself. And although aluminum production is not their main business, they have sufficient experience in its production and sales and are among the ten largest producers.
However, there have been rumors that the aluminum industry will continue to consolidate in the near future for many years. This process began quite a long time ago and has only recently moved to a new stage. If recently there was a takeover of smaller companies by large ones (a fairly recent example of this is the takeover of Alcan by the French Pechiney in 2003), now it seems that a real merger of giants is beginning. A similar process is observed in related industries, such as nickel and copper, where several large transactions have occurred in the last two years alone.
But this may not be the limit. Analysts predict that only a few mega-players may soon appear in the mining and metallurgical industry; these will be international, widely diversified groups, not so much competing with each other, but controlling individual areas of business.