Alcan (AL) had decided some weeks ago that it did not want to be taken over by Alcoa (AA) and made that clear to shareholders.
But, the Canadian metals company had been put into play and Alcan needed an alternative. If found that in the name of Rio Tinto (RTP) which offered $38.1 billion. Alcan accepted the offer.
What is truly stunning is that Rio’s offer is 33% above Alcoa’s. It is also over 60% higher than where Alcan’s shares traded before Alcoa made its offer.
The market is not that inefficient. Rio Tinto is taking a gamble, a very big one, that the price of aluminum will continue to rise, sharply. Alcan’s packaging group will be sold but that is unlikely to bring in enough money for the deal to make economic sense.
It is a case of overpaying, if there has ever been one.
Douglas A. McIntyre
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