Rio Tinto has made a $US38.1 billion ($A44.2 billion), $US101 per share cash offer for Canadian aluminium group, Alcan, in the biggest takeover yet seen in the worldwide resources industry.
The offer tops Alcoa's cash and scrip offer worth about $US28 billion, and if successful, will turn Rio Tinto into the world's biggest producer of the metal, topping UC Rusal of Russia.
Alcoa withdrew its offer early Friday morning, Australian time, saying of this price level (for Alcan): "we have more attractive options for delivering additional value to shareholders."
Alcan is the world's third largest aluminium player and will move past Alcoa and Rusal by being taken over by RIO (based on the old Comalco business).
The new aluminium group will be called Rio Tinto Alcan, and it will be headquartered in Montreal, where Alcan is based. Alcan's present CEO, Dick Evans, will head up the new combined business.
Rio's bauxite and alumina businesses will still be run from Brisbane.
BHP Billiton has been rumoured to be a bidder and if it has been frustrated, Alcoa could be its target.
The deal should end the silly chat from some analysts that BHP Billiton could look at Rio (Citigroup and others), while also halt suggestions that private equity could be sniffing around Rio and BHP Billiton.
Based on market caps, the deal will almost double Rio's market cap from $A46 billion to around $A90 billion and confirm it as number two in the resources industry behind BHP Billiton (which is valued at around $A125 billion for the Australian-listed shares and around $A200 billion when the London shares are included).
The merged company has agreed to divest Alcan's packaging business and Rio will be looking at selling some of its existing businesses, such as diamonds. Billions of dollars in sales are being contemplated so the Alcan deal debt can be pared down as quickly as possible.
The deal is big and a major first play for the new CEO of Rio, Tom Albanese, who took over two months ago from Leigh Clifford. Albanese has a reputation as a dealmaker (Clifford was more conservative, a builder rather than a buyer).
Albanese said in a statement to exchanges late yesterday that the benefits of the deal will be felt in the first full year.
"The acquisition will be value-enhancing to shareholders, and we expect it to be earnings and cash flow per share accretive to Rio Tinto in the first full year,'' he said.
"Rio Tinto intends to retain its focus on mining and metals activities by the divestment of Alcan's Packaging division, as jointly agreed with Alcan.
"The Engineered Products division will be retained with a focus on managing the portfolio for optimum value.''
The agreement also provides for a break fee of around $US1.049 billion ($1.22 billion) payable by Alcan to Rio Tinto (and a similar agreement goes the other way to Alcan).
Rio Tinto said it would finance the offer with newly committed bank facilities underwritten by The Royal Bank of Scotland, Deutsche Bank, Credit Suisse, and Societe Generale, but the mining giant has stressed thatthe offer is not conditional on financing.
Rio said it aimed to maintain a single A credit rating and its commitment to a progressive dividend policy, but the existing buyback programme will be discontinued.
Rio shares traded up $1.07 at $103.84, after hitting a new intraday high of $105.19 yesterday on speculation about a possible offer. Rio shares were placed in a trading halt late yesterday.
In a statement to exchanges, Rio listed the highlights of the offer:
• Cash offer price of US$101 per common share values Alcan at US$38.1 billion.
• Excellent fit with Rio Tinto's overall asset portfolio, strategy and value focus.
• Creation of a new global leader in the aluminium industry to be called Rio Tinto Alcan.
• Alcan's board of directors unanimously recommends acceptance of the offer and states that Rio Tinto's proposal fully meets the requirements of the Continuity Agreement.
• Global headquarters of Rio Tinto Alcan to be in Montréal, led by current Alcan chief executive Dick Evans.
• Rio Tinto and Alcan agree to divest Alcan Packaging business.
"The offer represents a premium of 65.5 per cent to Alcan's all time high closing share price of US$61.03 on 4 May 2007 prior to the Alcoa offer. It also represents a premium of 32.8 per cent to the value of Alcoa's current offer of US$76.03, based on Alcoa's closing share price on 11 July 2007.
"The combined aluminium product group, to be named Rio Tinto Alcan, will be a new global leader in the aluminium industry with large, long life, low cost assets worldwide.
"The combined Group's access to significant bauxite reserves, competitive alumina refining, low cost hydro power, leading smelter technology, and a deep and diverse talent pool provides an excellent position to capitalise on the favourable demand fundamentals of the aluminium industry. Rio Tinto Alcan will also have a strong portfolio of growth projects."
Rio said in its statement that Alcan has a high quality upstream asset portfolio with a sustainable low cost position through its excellent access to long life hydro power.
"In addition, the Alcan technology and hydro assets complement Rio Tinto's existing energy and climate change strategy, which is to position the Group for a future in which carbon emissions will be constrained."
The transaction is expected to create a new global aluminium industry leader in bauxite, alumina, power, aluminium and technology – with a strong pipeline of attractive growth projects for the future.
"Rio Tinto Alcan would be the largest global producer of aluminium and bauxite, based on current produc
