BHP Billiton, Rio Tinto said eying Alcoa

SYDNEY/NEW YORK - Mining giants BHP Billiton Ltd. and Rio Tinto Ltd. have drawn up separate plans for a $40 billion (20.5 billion pound) takeover of U.S. aluminium producer Alcoa Inc., the Times reported.

The report revived long simmering speculation that one or more of the world's international miners, cashed up on the back of rocketing metals prices, would swoop on Pittsburgh-based Alcoa.

A takeover would give either Rio or BHP immediate access to millions of tonnes of bauxite, alumina and aluminium production, and possibly prompt a break-up of one of America's best known companies.

The report comes just days after India's top aluminium producer, Hindalco Industries Ltd., agreed to acquire Novelis Inc. in an all-cash deal that values the Canadian company at $3.5 billion.

"The big negative point on Alcoa is that it's got huge downstream elements to it, and that wouldn't be attractive," said Sydney-based Standard Bank analyst Richard Rossiter, referring to Alcoa's plants that make finished products such as rolled aluminium.

"The only thing that would make it would be if you dismembered it, but to what extent would dismembering it harm the business?"

Rio Tinto and BHP, which are listed in both Australia and London, refused to comment on the article, as did a spokesman for Alcoa, which has a market capitalisation of about $28.5 billion.

A $40 billion takeover of Alcoa would dwarf CVRD <VALE5.SA><RIO.N> of Brazil's recent acquisition of Canadian nickel miner Inco for C$19.35 billion (8.4 billion pounds).

Alcoa stock rose 38 cents, or 1.17 percent to close at $32.90 on the New York Stock Exchange on Monday.

Morgan Stanley analyst Mark Liinamaa believed the "sum-of-the-parts value of Alcoa was more like $43 per share, suggesting a 32 percent upside from Friday's close.

In its report, the Times said BHP and Rio Tinto were each understood to have compiled feasibility studies for a bid, but were not thought to have as yet approached Alcoa's board.

Stocks in both companies were little changed in Australia.

As long ago as last July there was speculation of a takeover of Alcoa by either BHP or Rio Tinto, with analysts suggesting either company could easily fund such a move.

BHP Chief Executive Chip Goodyear, announcing the company's record half-year profit of $6.17 billion last week, left open the idea of acquisitions despite plans to buy back a further $10 billion worth of its own shares in the next 18 months.

The Times also reported Alcoa was looking at its future and had drawn up a list of potential new chief executives.

BHP executives featured prominently on the list, the newspaper said. It cited unidentified sources close to those on the list as saying Goodyear, who intends to leave by the end of the year, and executive directors Marius Kloppers and Chris Lynch had been approached or were being considered.

BHP, the world's biggest miner with a broad range of commodities, was understood to have done the groundwork on a bid for Alcoa, while Rio had considered a bid, but was not thought to have progressed as far as BHP, according to the Times.

In a research note on Monday, after India's Hindalco said it would acquire Novelis, Morgan Stanley's Liinamaa said merger and acquisition activity in the aluminium industry could serve as a catalyst for Alcoa.

Other analysts downplayed the likelihood of a bid, but would not rule out breaking up Alcoa given widespread merger activity in the mining sector.

"It's possible they might be planning to dismember the company," analyst Charles Bradford of Bradford Research/Soleil, said of Alcoa.

"Both BHP and Rio Tinto have shown no interest in downstream aluminium processing. Their interest has been primarily on the primary (metal) side and in fact both of them are significant players on the primary side," said Bradford.

Anti-competitive rules could toss up roadblocks, he add