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 contend.
The attractiveness of this scenario lies in the fact that a bid by Montreal-based Alcan for the larger Alcoa would require only 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, Tumazos said, and deals in the Middle East and elsewhere might evolve more smoothly. "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 yesterday that "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 a Pac-Man defence of going after Alcoa."
According to the New York Times, 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 Times reported yesterday on Tumazos's suggestion of a
reverse bid by Alcan.
The strategy appeared to have received a thumbs-up in Quebec's National Assembly yesterday. Responding to a question from the opposition, Economic Development Minister Raymond Bachand said that he, too, wished it were Alcan, "this jewel of Quebec," that was proposing an Alcoa takeover.
But at least one Canadian analyst contends 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 spoke on condition that his name not be used. A more likely scenario would be a three-way transaction in which a cash-laden 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 CEO Alain Belda held a news conference in Montreal to announce his company's $33-billion (U.S.) bid for Alcan. The cash-and-stock offer included a 20-per-cent premium for Alcan stock. On that day, Alcan stock soared to $82.11, up $21.08 in Toronto trading. Yesterday, Alcan stock climbed $2.01 to close at $90.
Alcan is expected to respond to Alcoa's offer by 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."
Belda pledged that the new
Alcoa/Alcan company would maintain dual headquarters in New York and Montreal. While Alcoa is incorporated in Pittsburgh, where it maintains
offices and research facilities, it has a New York headquarters. Belda also said that the new combined company would also boost its investment and profile in Quebec.
Tumazos noted that if Alcan swallowed Alcoa, that configuration would save more than the Alcoa takeover of Alcan because there would be no need for headquarters in Pittsburgh and New York.
Anti-trust regulators would still probably require that the new company divest its
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