Alcan Inc. shares are widely expected to reach new heights Tuesday on the New York Stock Exchange following fresh reports of interest by Rio Tinto PLC and Norsk Hydro ASA that have raised the spectre of a bidding war for the Canadian totem.
While the exchange was closed Monday for a U.S. holiday, newspaper reports out of Sydney, Australia, and Toronto suggested that Anglo-Australian Rio Tinto and Norsk, the Oslo-based energy and aluminum giant, were contemplating bids for Alcan.
“This is going to be a wide-open process,” Ron Mayers, head of alternative strategies with Desjardins Securities, said.
“The only thing that would surprise me is if (a possible contender) didn’t look at Alcan,” he said.
"Even if you are not a serious buyer, the opportunity to review information concerning a competitor is always a good thing.”
Reports last week that Alcan was in talks with mining giant BHP Billiton Ltd., after shunning an unsolicited $33-billion U.S. bid by Alcoa Inc., caused the stock to jump six percent, to close at $85.89 U.S. in New York last Wednesday while in Toronto, Alcan stock closed at $92.50.
In trading Monday in Toronto, Alcan stock climbed by $2.60 to close at $94.25.
As Alcoa’s May 7 stock-and-cash bid is in U.S. dollars - and with wrinkles caused by currency exchange - the Alcan stock price to watch is the one pegged on the greenback, Mayers said.
“And I believe that it will trade to a new high (today) in U.S. dollars,” he said.
Also forecast by Mayers and his firm is a political undertow that may knock potential bidders to their knees. Monday's call by the federal Liberals for an immediate review of Investment Canada’s mandate is but one indication of rough waters ahead.
“We think that the political risk in this deal is far greater than anyone supposes .... from the federal and provincial governments,” Mayers said.
While is widely believed that European regulators will raise the highest hurdles to Alcoa’s bid to takeover Alcan and thus become the world’s largest aluminum producer, U.S. regulators are also expected to raise flags, given the combined company’s clout in the aerospace sector which services the U.S. military.
And, in Quebec, where Alcan recently acquired an array of valuable water and hydroelectric concessions in exchange for its investment in the Saguenay, political - and public - sentiment is running high. In January, as Alcan announced a $58-million expansion of its Montreal headquarters, Premier Jean Charest called the relationship between Alcan and the city, “a great love story.”
The bid by U.S.-based Alcoa kicked off another mating game.
Mining behmoths, like BHP and Rio Tinto, are keen to add to their aluminum assets, Robert Mantse, senior
vice-president of the bond rating company DBRS, said.
“I really think it’s an open field here,” Mantse said.
Regulators will be less demanding with diversified mining giants, he said.
“If Alcoa can get it past the regulators, every other company could,” Mantse said. “It would be easier for BHP or Rio Tinto which have much smaller aluminum assets in terms of larger portfolios.”
Norsk has a presence in Quebec and has had close dealings with Alcan.
In 2004, when Alcan spun off its sheet products assets into Novelis, it included in the new entity its 50-per-cent stake in Europe’s biggest rolling mill, a German facility called AluNorf. That sale resolved a problem with European regulators following Alcan’s merger with Pechiney SA of France.
Norsk owns the other half of AluNorf.
In Quebec, Norsk has a 20-per-cent stake in the North Shore’s Aluminerie Alouette, which reopened in 2005 after a $1.4-billion smelter expansion. Alcan has 40 per cent of the Sept. Iles operation while Europe's Austria Metall has 20 per cent stake. Quebec's Socit generale de financement has a 13.33 per cent interest and Marubeni of Japan one of 6.67 per cent.
Norsk’s magnesium metal plant at Bcancour, northeast of Montreal, recently announced that it is closing down.