The battle over Alcan, could take another twist on Thursday when a London based company called Rio Tinto bids to win the rights to the Canadian aluminum company, which of course has a large interest in the Northwest at Kitimat.
The Rio Tinto bid is an opportunity for Alcan to escape the clutches of rival Acloa of Pittsburgh, a fate that the current management at Alcan would like to escape if at all possible. In an interesting twist, if successful it is expected that Rio Tinto will move its management personnel from London to Quebec, due to a continuity agreement negotiated between Alcan and the Quebec government over power.
In that agreement, any changes that would see the decline of capital investment in the province or head office personnel reductions would automatically cancel Alcan's hydro and water rights in Quebec's. A clause that perhaps the province of BC might have thought about adding in its recent dealings with Alcan over the Kitimat works plant.
It will be if interest locally to see how, if successful, the big from Rio Tinto will impact on the Kitimat expansion plans and the current agreements between Alcan and the BC government.
The Globe and Mail is reporting that the successful bid from Rio could top some 33 billion dollars and very well could be announced on Thursday.
Alcan set to reveal merger pact with Rio Tinto
From Thursday's Globe and Mail
July 12, 2007 at 1:53 AM EDT
Alcan Inc. is set to unveil a merger agreement with Rio Tinto PLC, according to sources, that would top a hostile $28-billion (U.S.) bid from rival Alcoa Inc. and create a new global mining powerhouse that would be among the world's largest aluminum producers.
Sources familiar with the situation said that the friendly deal, which could value Alcan at more than $33-billion, could be announced as soon as Thursday.
The sources cautioned that the late-stage negotiations could still fall apart and that a definitive takeover agreement may not be reached.
The Montreal aluminum producer has been canvassing the globe for a friendly deal since May when Pittsburgh-based Alcoa launched a surprise cash-and-stock bid for Alcan after two years of halting negotiations broke down.
Alcan has rejected Alcoa's cash-and-stock offer, calling it too low and uncertain due to the challenging regulatory clearances it would need. At the close of trading yesterday, Alcoa's offer valued Alcan at $76.11 a share. Alcan shares rose more than 4 per cent yesterday, to a new high of $89.60, after The Globe and Mail reported that Rio Tinto was negotiating toward a friendly deal with Alcan.
For the London-based miner and its new chief executive officer, Tom Albanese, a bid for Alcan would mark the storied company's largest acquisition ever and represent a major bet on the future strength of aluminum prices.
Already a heavyweight in metals such as iron ore and copper, Rio Tinto is currently the world's third-largest mining company, but only the eighth-largest aluminum producer.
Alcan is the No. 3 aluminum producer behind Alcoa and UC Rusal, of Russia which recently completed a three-way merger to form the world's biggest maker of the metal used to make everything from cans to aircraft parts.
Alcan is particularly coveted for its smelting operations in Quebec, British Columbia and elsewhere, which are prized for their access to cheap hydroelectric power.
Power accounts for more than a third of the costs of running an aluminum smelter. Alcan generates much of its own electricity for its smelters in Quebec and has agreements with the province for additional power and access to waterways.
The deal with Rio Tinto is expected to keep Alcan's head office in Montreal.
The proposal would then likely see the London-based miner move the bulk of its aluminum executives to Quebec's largest city. Under a so-called "continuity agreement" negotiated last year, Quebec has the right to cancel Alcan's hydro and water agreements in the event of a takeover that would significantly reduce the company's head office count or the amount of capital invested in the province.
Rio Tinto is expected to sell the bulk of Alcan's so-called downstream assets, such as its packaging business and aerospace operations.
Indeed, sources said Rio Tinto has already approached potential buyers for the assets such as private equity groups and industry players such as Kaiser Aluminum Corp. of California.
For Alcoa, a friendly agreement between Alcan and Rio Tinto represents a severe setback for its hopes to create the world's largest aluminum maker, controlling about a fifth of global production.
Sources close to the company said it won't consider a potential counterbid until it has seen the terms of any deal Alcan may have. However, Alcoa may also insist on gaining access to Alcan's confidential information before increasing its bid.
"Before we offer up more value, we want to see more information," said a source familiar with Alcoa's strategy.
Alcoa chairman and CEO Alain Belda approached Alcan's CEO Dick Evans last month, hinting that Alcoa might sweeten its bid if it could gain access to the data room. The request was denied when Alcoa refused to sign a standstill agreement.
"You have to question the corporate governance of not letting us in," said another source close to Alcoa who noted that Alcan's board's responsibility is to create the maximum amount of shareholder value.
Update: the Rio Tinto bid is reported to be 38.1 billion dollars, sending Alcan shares surging on the stock exchange.