Tuesday, July 10th, 2007
Battle For Commodity Footholds Continues With Alcan Buyout
By Jason Simpkins
While merger news involving the Chicago Board of Trade and the Chicago Mercantile Exchange has been the talk of the U.S. financial world, another looming merger underscores the ongoing worldwide bull market in commodities.
The swelling demand for strategic resources, driven by developing nations such as China and India, is forcing a number of companies to seek out mergers and acquisitions that will give them an edge in courting high profile customers.
Alcoa Inc (NYSE:AA) and Rio Tinto PLC (NYSE: RTP) may be looking to lock horns over one of the world’s leading suppliers of bauxite, alumina, and aluminum, in Alcan Inc. Alcan is a top-ranked provider of engineered and packaging materials as well, and with revenue in 2006 climbing as high as $23.6 billion, it is no wonder the company is under siege.
Rio Tinto PLC, the world’s third largest mining company, is the latest suitor to move on Alcan. Published reports have stated that Rio Tinto and rival BHP Billiton PLC have received access to Alcan’s books as the Montreal-based company seeks a white knight to fend off a hostile, $33 billion bid from Alcoa. Rio Tinto has made the first move having reportedly hired financial advisors to evaluate an offer.
Alcoa’s hostile bid is set to expire today, but the company will likely extend it. Earlier this week, Alcoa released a regulatory filing revealing an e-mail exchange between its chief executive, Alain Belda, and Dick Evans of Alcan. The exchange indicated that Alcoa might increase its offer for Alcan if given access to its finances.
The first response from Evans suggested Alcan was open to talks with Alcoa as long as it could reach a confidentiality and standstill agreement. However, Evans has also said that Alcan’s board saw "no reason to engage in further discussions and correspondence."
Rio Tinto is a company that often finds itself in heated competition with rival mining giant BHP Billiton PLC (NYSE: BHP). Both companies are based in Australia, home to 24% of the planet’s uranium, and both companies are eager to do business with China, a country desperate to phase out its coal plants by way of atomic energy.
Whatever Alcan’s fate, it has become apparent that a many big time companies are looking to diversify their holdings and cash in on runaway commodity prices.
Over the past three years aluminum has enjoyed a slow but steady rise from just over 70 cents per pound to its current price of $1.24 per pound. Aluminum demand in the United States and Canada slipped 3.2% in the first fourth months of the year, to 8.4 billion pounds, the Aluminum Association said in a June update. But demand from China is on pace to increase more than 30% this year, says research firm Global Insight.
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