Rio Tinto’s bid for Alcan tops Alcoa’s hostile offer

Mining giant Rio Tinto has offered to buy Canadian aluminum company Alcan Inc. for $38.1 billion in cash, the companies said Thursday, in a friendly takeover that tops a hostile bid by Pittsburgh-based Alcoa Inc.

The bid exceeds a $28-billion offer of cash and stock from Alcoa that Alcan’s board rejected in May, and would create the world’s largest aluminum company. Alcoa withdrew its offer Thursday after being outbid.

Alcoa Chairman and Chief Executive Alain Belda said Rio Tinto’s bid “strongly reinforces our view of the underlying value in the aluminum industry and its bright prospects for the future.”

“However, at this price level, we have more attractive options for delivering additional value to shareholders,” he said.

In a joint statement, London-based Rio Tinto and Montreal-based Alcan said that Rio Tinto was offering $101 a share for Alcan and that Alcan’s board was recommending the deal to shareholders.

“This transaction combines two leading and complementary aluminum businesses and is a further step in Rio Tinto’s strategy of creating shareholder value through investing in high-quality, large-scale, low-cost and long-life assets in attractive sectors,” Rio Tinto Chairman Paul Skinner said.

Rio Tinto’s offer is a 65.5% premium over Alcan’s closing share price before Alcoa’s May 4 takeover bid, and an almost 33% premium on Alcoa’s offer, the statement said.

The offer is subject to conditions including gaining the support of 66.7% of Alcan’s shareholders and a breakup fee of $1.05 billion payable by Alcan to Rio Tinto if Alcan pulls out.

Alcan’s U.S. shares climbed $8.85, or 9.9%, to $98.45 and Alcoa shares rose $2.86, or 6.7%, to $45.29.

Trading of Rio Tinto’s shares was halted in Sydney ahead of the announcement; the stock earlier had soared to a record price of 105.19 Australian dollars ($90.58) as rumors swirled that a deal with Alcan was imminent. On the London Stock Exchange, where Rio Tinto’s shares also are traded, the price fell 2.5% after the announcement to 3,892 pence ($78.99).

Under the deal, a company named Rio Tinto Alcan would be based in Montreal that would be “a new global leader in the aluminum industry,” the companies said. It would be headed by Alcan CEO Dick Evans.

Alcan Chairman Yves Fortier said the Rio Tinto bid was “very attractive” and offered shareholders “the certainty of a clear path to completion” -- a possible reference to antitrust concerns about Alcoa’s bid.

“The agreed transaction with Rio Tinto is the outcome of a rigorous and thorough process conducted by the Alcan board,” he said.

“It achieves all of our stated goals, providing clearly superior value to Alcan shareholders while remaining true to our core values and obligations as responsible corporate citizens,” he said.

Rio Tinto CEO Tom Albanese called aluminum an excellent business to be in because of increasing demand from China.

“World demand is expected to grow at more than 6% per year through 2011,” he said.