Anglo-Australian mining company Rio Tinto PLC may be considering a $27 billion-plus bid for Canada's Alcan Inc., an Australian newspaper reported, but analysts on Monday played down the benefits of a linkup between the two global companies.
Rio Tinto has hired Deutsche Bank to advise it on a possible bid for Alcan, The Sydney Morning Herald reported, without citing sources.
Alcan's board urged shareholders to reject a hostile $27 billion cash-and-shares offer from U.S. competitor Alcoa Inc. on the grounds that it was too low and completion of the merger was too uncertain due to regulatory and other hurdles. Alcoa said it is sticking to its offer, arguing management has already met with a significant number of Alcan's shareholders and had received "strong support."
In turn, Alcan has not ruled out the option of buying Alcoa, and has said it is in talks with third parties about other options. The Herald report said interested parties other than Rio Tinto could include BHP Billiton Ltd., Companhia Vale do Rio Doce, Anglo American Plc, Xstrata PLC, UC Rusal, Chinese groups and private equity groups. Rio Tinto, BHP Billiton and Deutsche Bank all declined to comment on the report, calling it speculative.
Analysts downplayed the chances of a tilt by Rio Tinto or BHP Billiton for Alcan, pointing to limited synergies with the Canadian company’s assets. They see a tie-up between Alcoa and Alcan as the most beneficial, and obvious, outcome.
“Rio certainly has done the numbers but that doesn't mean they'll bid,” Global Mining Research analyst Tony Robson said. Gavin Wendt, an analyst at Sydney-based Fat Prophets, said Alcan “surely is talking to other companies to find a white knight, but Alcoa is the main player.”
Talk of a Rio Tinto-Alcan deal comes amid a wave of speculation about consolidation in the booming global resource sector, including the $6.3-billion takeover battle for nickel producer LionOre between Xstrata and Russia's OAO Norilsk Nickel.
Robson said Alcan’s downstream packaging and engineered products divisions were a risk because of low profit margins, which would likely further reduce synergies for the likes of Rio Tinto or any of the other names linked to the company.
“Alcoa has quoted synergies of $1 billion but it's likely to be a lot less for other potential bidders like BHP Billiton or CVRD,” Robson said.