Alcoa Now Going After Alcan in a Takeover (AA, AL)

Alcoa (AA) has offered to buy Alcan (AL) for $73.25 in cash and stock with an actual breakdown of US$58.60 in cash and 0.4108 of a share of Alcoa common stock for each outstanding common share of Alcan.  This would be a complete game changing move for Alcoa, and it will likely eliminate them as a potential takeover target themselves.

Alcan shares are actually higher than the offer price now, indicating that there could be a higher offer; while Alcoa shares are indicating lower, mostly since this will essentially wipe out the chances that this gets acquired.

Here are the combination metrics according to Alcoa.  Between the stock and debt and assumption, this will represent a $33 Billion offer.  The company believes this will create a $1 Billion cost savings synergies. On an aggregate basis for 2006, the combined company would have had revenues of US$54 billion and EBITDA of US$9.5 billion, before synergies. In 2006, the combined company’s alumina capacity would have been approximately 21.5 million tonnes and its aluminum capacity would have been approximately 7.8 million tonnes. In addition, the combined company would have approximately 188,000 employees in 67 countries.

The transaction is subject to review by antitrust authorities in various jurisdictions including the U.S., Canada, the European Union, Australia and Brazil. It also requires foreign investment clearance in Canada, France and Australia.  Alcoa is targeting completion of the transaction by the end of 2007.

The offer and withdrawal rights are scheduled to expire at 5:00 p.m., Eastern Daylight Saving Time on July 10, 2007, subject to extension.  Alcoa has received a commitment letter from Citi, Goldman Sachs Credit Partners L.P. and Goldman Sachs Canada Credit Partners Co. to fully finance the proposed transaction. Skadden, Arps, Slate, Meagher & Flom LLP, Stikeman Elliott LLP, and Cleary Gottlieb Steen and Hamilton LLP are acting as legal counsel to Alcoa. Citi, Goldman, Sachs & Co., BMO Capital Markets, and Lehman Brothers are acting as financial advisors.

Jon C. Ogg
May 7, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.