Rio Tinto (RTP) has hired Credit Suisse and Deutsche Bank to help it make a run at Alcan (AL). Alcan’s aluminum rival Alcoa (AA) has been trying to set up a merger for months, so Rio’s action will not exactly be welcome by the large US company.
Rio’s move puts more focus on what Alcan is worth. Its share price has gone from a 52-week low of $37 to $87 over the last year. Part of that is due to takeover speculation. But, Alcoa, a nearly identical company in terms of business operations, industry group, and operating margins, is up only 30% for the last year.
Last year, Alcan made $2.6 billion in operating profit on $23.6 billion in revenue. Alcoa made $3.6 billion on $30.4 billion.
The increased value of all of these metals companies has its foundation in the assumption that aluminum prices will continue to rise, and, indeed, it appears that, for at least the next year, this is true. But, commodities do not rise indefinitely.
Part of the talk about Rio Tinto’s look at Alcan is that it may give Alcoa the once over as well.
Alcoa is by far the better bargain. But Rio will probably find that out soon enough.
Douglas A. McIntyre can be reached at [email protected].
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