Bankers See Alcoa As A Good Buy For BHP Billiton

A possible bid by Australian mining and metals giant BHP Billiton for Alcoa could bring significant benefits to the company and cannot be ruled out, industry analysts said.

The Times of London earlier reported that the Melbourne-based company has revived plans for a $40 billion takeover of Alcoa.Without saying where it received the information, the newspaper said BHP is only in the early stages of weighing a potential offer for the aluminum producer and isn't thought to have made an approach.

BHP Billiton declined to comment on the report, but a spokesman for the company said they are constantly looking at opportunities. Alcoa was not immediately available for comment.

If it does emerge, an acquisition would give BHP Billiton a greatly increased share in the booming aluminum market and deliver significant synergies and cost reductions, analysts said.

A London-based banker who specializes in the mining sector but requested anonymity said BHP Billiton is looking to keep its place as the world's largest diversified mining company and would do so by extending its current aluminum operations.

BHP Billiton is the world's sixth largest producer of primary aluminum, with a total operating capacity in excess of one million tons of aluminum. Alcoa is the world's largest aluminum producer.

"I'd be amazed if they weren't looking at Alcoa," said the banker, adding that the resulting increase in aluminum market share would enable the company to have a bigger impact on aluminum prices.

An upcoming change in leadership at BHP, when Marius Kloppers replaces Chip Goodyear as Chief Executive on October 1, may be the key towards going through with such an acquisition, he said.

"Kloppers is a strategist, aggressively on the front foot," said the banker. There's a real "personality difference" with Goodyear which could bring the focus to an Alcoa acquisition, he said.

Kloppers, a South African national, currently heads up BHP Billiton's nonferrous materials division. He is credited with playing a central role in the 2001 merger of BHP and Billiton, and is expected to push the company into a more prominent role in the consolidation gripping the industry.

A second London-based banker said the direct synergies won't be very great in terms of overlapping operations, but in terms of head office rationalization and procurement there would be potential for significant cost savings.