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Alcan (AL)
Alcan Receives $27bn Offer from Rival Alcoa
Shares of Canada-based aluminum company Alcan jumped more than 30% after New York-based Alcoa (AA: Charts, News, Offers) made a $27bn takeover offer. The hostile bid was announced after nearly two years of negotiations failed to spark a merger, and could easily rocket skyward as other companies force a bidding war. The substantial premium shocked some on Wall Street, considering that Alcan had been performing better than its larger rival. What does the merger mean for the two companies, and will it run afoul of anti-trust regulations?
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The $27bn deal would give Alcan shareholders $58.60 in cash and 0.4108 Alcoa shares for every Alcan share held. As an example, the deal would be worth roughly $73.25 if Friday share price is used (a 20% premium). Alcan had been performing better than its American rival for the past five years, and recently posted better growth figures than its larger rival. From January 2003 to the April 20, 2007, shares of Alcan outpaced Alcoa 34%. With Alcoa shares only now returning to early 2004 levels, the company popped up on some radars as a possible acquisition target itself, which is why some investors were surprised by the premium offer.
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Alcan is no stranger to merger talks. In 1999, it proposed a three way merger between itself and two European companies: Swiss-based Alusuisse Lonza Group and Pechiney of France. This was knocked down by the European Commission on fears that the combined companies would violate anti-trust laws. Instead, Alcan acquired the Swiss company in 2000 and the French aluminum producer in 2003.
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Alcoa, already the world's second-largest producer of aluminum, could stand to gain a lot from the purchase of its third place rival. If Alcan shareholders accept the offer, the resulting Alcoa-Alcan combination would likely show higher growth than each individual company could experience on its own. Capacity would approach 22m metric tonnes of alumina, a component of aluminum, and would push the venture's aluminum capacity to nearly 8m tonnes. The combined revenue for the two companies came to $54bn, and Alcoa expects almost $1bn in operational savings each year.
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The move to create the behemoth comes on the heels of the merger between Moscow-based Rusal and two smaller rivals: Russia's SUAL and Swiss-based Glencore International. The deal placed control of 10% of the world's aluminum market into the hands of one company, as well as 70% of the Russian market. With control of commodities shifting to fewer companies, the deal between Alcoa and Alcan seemed to be a no-brainer. With combined expertise and the sharing of resources, the merged firm could weather commodity price fluctuations better, though it is somewhat unlikely that prices will fall. Global use of aluminum is second to iron, and is used in items ranging from cars and airplanes to rocket propellants and computers.
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Profile |
The Company's principal activities include bauxite mining, alumina refining, specialty chemicals, power generation, aluminum smelting, manufacturing, recycling and packaging. The Company also produces and converts specialty packaging and packaging products for many industries including the food, pharmaceutical, cosmetic and health sectors. It distributes and markets aluminum, non-aluminum and packaging products and also produces and sells industrial chemicals. The Company operates in over 38 countries including Canada, the United States, Germany, the United Kingdom, Switzerland, Australia and other. On 12-Feb-2004, the Company acquired Pechiney and on 08-Jul-2005, the Company acquired Prewired Systems, LLC.
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