Alcoa to Buy Rival Aluminum Firm

Aluminum Co. of America, the world’s biggest aluminum producer, agreed Monday to buy rival Alumax Inc. for $3.8 billion in cash, stock and assumed debt.

Alcoa would pay $50 a share in cash for half of Alumax’s outstanding shares, a 36% premium to Alumax’s closing price Friday, and exchange shares valued at $49.95 each, based on Friday’s price, for the rest. It would also assume $1 billion in Alumax debt.

If approved by the Justice Department, the acquisition of the world’s fifth-largest aluminum company would accelerate Alcoa’s move into emerging markets such as China and India, where Alumax is a big supplier of aluminum building materials. It would also help insulate Alcoa from the cyclical nature of raw aluminum prices, analysts said.

Several analysts cautioned that the acquisition could be blocked by the government, which stopped Alcoa from buying an Alabama aluminum rolling mill from Reynolds Metals Co. in December on antitrust concerns.

But others said an unfavorable decision by the Justice Department is unlikely, noting that the Reynolds purchase was blocked because the government feared Alcoa would close the facility amid an oversupply of aluminum sheet for beverage cans.

“We’re very confident the Justice Department won’t find anything to haggle about in this transaction,” Alcoa Chairman and Chief Executive Paul O’Neill said.

He said that even after the merger, Alcoa would account for less than 10% of the global aluminum production capacity when Russia and China are included.

Alumax shares jumped $10.31 to close at $47, and Alcoa shares lost 19 cents to close at $71.44. Both trade on the New York Stock Exchange.

After the purchase of Atlanta-based Alumax, Alcoa would have 100,000 employees, $17 billion in annual revenue and estimated annual output of 3.8 million metric tons of aluminum.

Alumax would be the biggest of a recent series of acquisitions for Alcoa. The Pittsburgh-based company has been capitalizing on the depressed share prices of metals companies to acquire assets for less than it costs to build plants or restart idled plants that are too expensive to operate, Merrill Lynch analyst Daniel Roling said.