Add to all the news about Alcoa (AA) buying rival aluminum company Alcan (AL) the rumor that Australian metals giant BHP Billiton (BHP) may buy Alcoa.
BHP could probably afford the deal, It has a market cap of $174 billion compared to Alcoa’s $36 billion. And, on the face of it, combining two big metal companies should save money in overlapping production and management costs.
But, think again. Merger talk and rising aluminum prices have taken Alcoa’s stock up well over 40% during that last year. And, the price of the commodity cannot go up forever. The "merger premium" based on cost savings, is probably priced into the stock. Any glitch in putting the two companies together is bound to hurt the share price of the combined entity.
BHP’s stock is up, too. Over the last twelve months it has added about 50%. So, the currency it would have to pay for Alcoa is worth more. But, the getting the US company would almost certainly require paying a premium, and all of the benefits are already priced in.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
Want to Retire Early? Start Here (Sponsor)
Want retirement to come a few years earlier than you’d planned? Or are you ready to retire now, but want an extra set of eyes on your finances?
Now you can speak with up to 3 financial experts in your area for FREE. By simply clicking here you can begin to match with financial professionals who can help you build your plan to retire early. And the best part? The first conversation with them is free.
Click here to match with up to 3 financial pros who would be excited to help you make financial decisions.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
