Alcoa's target Alcan to harness metals boom

Alcoa Inc's planned $26.9 billion takeover offer for Alcan may be the strategic move Chief Executive Officer Alain Belda seeks to get his company's shares to reflect surging metals prices.

Alcoa's cash-and-stock offer to create the world's largest aluminum producer has already led the company's shares to their biggest one-day gain since Nov. 21, 2002, while Alcan's stock had its biggest climb since at least 1980.

"This will cement his legacy,'' said Scott Burns, an analyst with Morningstar Inc. in Chicago. "Belda becomes the one who most firmly establishes Alcoa's position as a real force to be reckoned with in the metals world. I had expected Belda to be the acquired, not the acquirer.''

As recently as February, some investors had said a takeover of New York-based Alcoa may have been Belda's best bet. The shares jumped 6.4 percent on Feb. 13, at the time the most since April 2003, after London's Times said BHP Billiton and Rio Tinto Plc may each have been preparing $40 billion bids for Alcoa. Neither company has bid.

The takeover speculation contributed to a 24 per cent jump in Alcoa stock in the six months before yesterday. Surging metals demand had sent aluminum prices up 64 percent in the three years ended February 13, while Alcoa shares fell 5.4 percent.

Alcoa shares had fallen 8.3 percent from when Belda took over in May 1999 through February 13, while Montreal-based Alcan jumped 52 per cent.

Alcoa's offer for Alcan "is as much a defensive move as it is offensive, since it leads us to believe that a strategic buyer is likely pushing Alcoa to do this deal,'' Michael Gambardella, an analyst at JPMorgan Chase & Co., wrote yesterday in a note to clients. Gambardella expects Alcoa's bid to spur offers for both companies.

Investors had speculated Alcoa may be a takeover target after a five-year rally in metals such as copper, aluminum and zinc left the world's largest mining companies flush with cash. More than $157 billion of takeovers and mergers were announced last year in the industry. Melbourne-based BHP and London-based Rio Tinto said in February that they were looking at acquisitions.

Even with the interest in mergers, Alcoa's bid for Alcan may not be a defensive move to forestall any takeover by a third company and may be the move Belda has sought, said Carol Cowan, a senior analyst at Moody's Investors Service in New York.

"Size matters both for diversity of markets and risk position in markets,'' Cowen said. ``Clearly they are two very global players.''

Belda, 63, said in a statement that Alcoa has been talking to Alcan about an acquisition off and on for almost two years and made an offer as recently as late last year. Now Belda is taking his offer straight to shareholders.

"It's better to be bigger,'' Belda said at a press conference in Montreal yesterday. ``As my father used to say, you have to be bigger than the hole you can fall in.''

Alcan, in a statement, said that its board will "consider the proposal" and urged shareholders to take no action until the review is complete.

The proposed combination of Alcoa and Alcan would create a company with twice the capacity of Moscow-based United Co. Rusal, which completed a three-way merger in March to top Alcoa in terms of production. Alcan and Alcoa have lost market share to rivals in Russia and China as aluminum prices doubled in the past four years.

Belda still faces barriers. Alcan broke off talks in November, and Canadian regulators have begun a review of the transaction because it may lead to job losses in the country.

A takeover would be a high mark in Belda's career. Born in Meknes, French Morocco, in 1943, Belda studied in Brazil and Canada and graduated from Universidade Presbiteriana Mackenzie with a degree in business administration. He joined Alcoa Aluminio, Alcoa's Brazilian affiliate, in 1969 as a trainee accountant and rose to become chief executive officer in 1999 from former CEO Paul H O'Neill, who later became U.S. Treasury Secretary.

Belda improved earnings during a five-year commodity rally begun in 2001. Net income in 2006 rose to a record $2.25 billion, or $2.57 a share, from $1.23 billion, or $1.40, a year earlier, helped by increased demand from the aerospace, transportation and construction industries. Alcoa also invested in expanded production in Australia, Jamaica, Brazil and Iceland.

In 2006, Alcoa paid Belda a $2.4 million bonus, more than the $1.6 million a year earlier, the company said in a filing on January 19, 2007. Belda received $3.775 million in bonus and salary, up 117 per cent since 1998, data compiled by Bloomberg shows.