BHP Billiton in early-stage talks with Alcan: report

BHP Billiton is in early-stage talks with Alcan after the Montreal aluminum producer's board urged investors to reject a $27 billion offer from Alcoa late Tuesday, according to a report.

Toronto's Globe and Mail newspaper on Wednesday reported the talks between BHP and Alcan , citing unnamed sources.

Alcan shares closed 6% higher at $85.89 Wednesday, reaching a new all-time high during the day. Alcoa shares gained 3.7% to $40.37, hitting a six-year high in intra-day trading. U.S.-listed shares of BHP Billiton rose 2% to $51.76.

Alcan, whose board recommended shareholders reject Alcoa's offer as "inadequate in multiple respects," has said it is talking to other companies to "explore alternatives." In a securities filing, the company said it is in "ongoing discussions with third parties," but did not name them. See story on Alcan's recommendation.

A spokesman for BHP Billiton declined to comment on "speculation," but reiterated what CEO Chip Goodyear told an audience last night -- that the world's top miner would consider acquisitions that add shareholder value.

All the while, rumors that BHP may want to take control of fellow Australian miner Rio Tinto are still in the market.

Rio Tinto also has been named as a logical suitor for Alcan, and both BHP and Rio have been reported to have interest in Alcoa

Alcan CEO Dick Evans told the newspaper that he wouldn't rule out turning the tables with its own bid for Alcoa.

A combination of the two aluminum producers would create a company with $54 billion in revenues and clinch Alcoa's spot as the world's largest producer of aluminum and its feedstock, alumina. Alcoa would gain Alcan's access to cheap hydroelectric power, an advantage as it increasingly competes with producers in countries with cheap power supplies like Russia.

Mining giants like BHP and Rio are flush with cash as Chinese demand for metals has lifted mineral prices, and their aluminum production capacity is relatively limited.

With former Alcan executive Cynthia Carroll as chief executive, Anglo American also could be a potential buyer, according to a recent analysts' note from Deutsche Bank.

The variety of outcomes to Alcoa's attempted bid weighs in favor of owning Alcoa shares, said Credit Suisse analyst David Gagliano on Wednesday.

"The final outcome will bear little (if any) resemblance to the initial offer set forth by Alcoa," due to a prolonged antitrust review and a multiple of other scenarios, such as counter-bids or breaking up one or both companies, he wrote in a note to investors.

"We believe the most likely scenarios favor owning Alcoa shares outright," he said.