Alcoa Making Hostile Bid for Alcan

In a move that some manufacturers fear could increase aluminum prices, Alcoa has announced an unsolicited bid valued at $27 billion for its North American rival Alcan Inc. The deal would make Alcoa once again the world’s largest aluminum producer.

Alcan’s board has said it would consider the offer. Financial analysts, however, foresee other potential bidders emerging.

Any Alcoa/Alcan merger would mark the third major consolidation in the North American aluminum industry in the last decade. In 1998, Pittsburgh-based Alcoa acquired Alumax. Two years later, Alcoa merged with Reynolds Metals Co.

“There used to be Alumax, Reynolds, Alcoa, Alcan that you could buy from,” says Rod McDonald, director of supply chain for Traco in Cranberry Township, Pa. “The number of primary producers is becoming a lot smaller … this should be somewhat concerning to our industry.”

While McDonald says the potential merger would not affect the global price of aluminum alloy, it could increase prices for processed materials, from billet to extrusions.

Mike Petersen, president of Petersen Aluminum Corp. in Elk Grove Village, Ill., says window manufacturers should prepare for cost increases if the deal goes through. “[The merger] is potentially a big deal,” he says.

While a merger could take up to several years, McDonald recommends industry executives look out for developments. “Obviously we should be paying attention,” he says.

Currently, Pittsburgh-based Alcoa is the world’s second largest aluminum producer, while Montreal-based Alcan is number three. In March, Rusal of Moscow became the largest aluminum producer after merging with the Russia’s Sual Group and Glencore International AG of Switzerland. If successful in acquiring Alcan, Alcoa would again become, by far, the world’s largest aluminum producer.

Alcoa and Alcan had been in merger negotiations, but those talks broke off last November. In a press release issued with its offer, Alain J.P. Belda, Alcoa chairman and CEO notes the company would have preferred a negotiated transaction, but decided to take the offer directly to Alcan shareholders because of the “compelling strategic rationale” for a merger. “With the changing dynamics of our industry over the past decade, we firmly believe that a combination of the two companies will enhance our future competitiveness against increasingly formidable competitors from around the world,” he notes.

Following the Alcoa offer, financial analysts suggested that other bids could emerge from other worldwide aluminum producers or private equity groups. It has even been suggested the offer could be turned around, with Alcan deciding to acquire Alcoa.

—Katy Devlin, editor, e-glass weekly

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