Alcan could be hunter, not hunted: analysts

Alcan Inc. could execute a "Pac-Man defence" and gobble up Alcoa Inc. instead of itself being devoured by the U.S.-based aluminum producer in a hostile takeover, some industry analysts are speculating.

The attractiveness of this scenario lies in the fact that a bid by Montreal-based Alcan for the larger Alcoa would only require one head office - in Montreal - and could be a lot easier to swallow for regulators and politicians on both sides of the Atlantic, New York analyst John Tumazos said in a note to clients.

"Canadians are not unpopular in the world these days," Tumazos, of Prudential Equity Group, wrote in a May 13 note to clients that sketched the pros and cons of a reverse takeover by Alcan.

The Quebec government would likely prefer that a Canadian company hold long-term water rights now ceded to Alcan, and deals in the Middle East and elsewhere might evolve more smoothly, Tumazos said.

"Simpler regulatory issues in Europe might sidestep anti-Americanism if Alcan were the buyer," he said.

Carol Levenson, director of research at Gimme Credit, a New-York independent research firm on corporate bonds, said, "Alcan is unlikely to go quietly ... and is likely to attempt to remain independent."

In a note to her clients, Levenson said: "We would not be surprised to see the company make a leveraging defensive move itself, perhaps even an Pac-Man defense of going after Alcoa."

The tactic first gained currency in the 1980s, when it was dubbed the Pac-Man defence, after the popular video game in which players could change roles and go after their pursuers.

The strategy appeared to have gotten a thumbs-up in Quebec's National Assembly Tuesday. Responding to a question from the opposition, Economic Development Minister Raymond Bachand said that he too wished it was Alcan, "this jewel of Quebec," that was proposing an Alcoa takeover.

But at least one Canadian analyst believes that a Pac-Man move by Alcan is "a bit of a stretch," given shareholder expectations and the debt load Alcan would acquire if it were to swallow Alcoa.

Alcan might bid for Alcoa if only because "in this market almost anything is possible," said the analyst who asked not to be identified.

But a more likely scenario would be a three-way transaction whereby a cash-swilling mining conglomerate like Rio Tinto or BHP Billiton bids for Alcan and then makes a bid for Alcoa, he said.

Alcan share prices have soared since May 7 when Alcoa announced its $33 billion US bid for Alcan. The cash-and-stock offer included a 20-per-cent premium for Alcan stock. On the day of the announcement, Alcan stock soared to $82.11, up $21.08 on the Toronto Stock Exchange. On Tuesday, Alcan stock climbed $2.01 to close at $90.

Alcan is expected to respond to Alcoa's offer by next Tuesday.

Alcan shareholders are "anticipating a significant takeover premium and they would be highly agitated if Alcan then turned around and said they were going to make a bid for Alcoa," the Canadian analyst said.

"On a stand-alone basis, Alcan bidding for Alcoa is fairly unlikely."