Bid for Alcan kicks off long, slow dance

Monday's $33-billion (U.S.) takeover bid by Alcoa Inc. for Montreal-based Alcan Inc. was the first verse of a match-making saga that will involve "twists and turns" over many months and, almost certainly, other suitors, bond rating agency DBRS said yesterday.

"This is just the beginning of the Alcan-Alcoa story," Kam Hon, DBRS managing director, said in a conference call from Toronto.

Even without competing bids, Alcoa's attempt to forge the world's largest aluminum company faces significant hurdles including those that may be erected by various governments - including Quebec's - and antitrust authorities, senior vice- president Robert Mantse said.

He was calling from Ireland and a metals conference abuzz with talk about takeover bids:

Shares of Rio Tinto Group, the world's third-largest mining company, jumped yesterday in London on speculation its biggest competitor, BHP Billiton, will make a takeover offer. Shares of BHP also  rose. Both companies are among the firms widely thought to be interested in Alcan and/or Alcoa. Other contenders include Companhia Vale do Rio Doce, Xstrata PLC and Anglo-American PLC, whose new CEO Cynthia Carroll had been the head of Alcan's primary metals group.

And private equity can not be ruled out, Mantse said. During the Merrill Lynch Global Metals & Mining Conference in Dublin, it was opined that private equity had enough strength to bag even the mammoth BHP.

"There is a lot of liquidity out there" although it hasn't yet been a major factor in the mining and metals sector. Mantse said. Last summer, Texas Pacific Group acquired aluminum assets in a deal worth about $2 billion U.S.

Of the array of regulators that would have to okay the Alcan-Alcoa deal, Canada's probably offers the least resistance, Mantse said in response to reporters' questions.

"I think it will be the American regulators and secondly, the European regulators that will be the most challenging," he said.

One key U.S. concern would be the combined company's share of the aerospace market, some of which is military, he said.

The friendly attempt by Inco and Falconbridge to tie the knot "coasted through Canada," Mantse said, but was "held up by the EU regulators long enough for Xstrata to come in."

Definitely, there will be "much more consolidation in the mining sector in the next 18 to 24 months," he said.

On Monday, DBRS put Alcan's ratings under review with developing implications. Alcoa's ratings were placed under review with negative implications.

"The financial profile of New Alcoa is significantly adversely impacted given the debt incurred to finance the proposed acquisition," DBRS said.