Rusal, Sual To Create Russian Aluminum Giant

SAN FRANCISCO (Dow Jones) -- Russian aluminum producers Rusal Ltd. and Sual Group on Monday announced a three-way merger that would create the world's largest producer of aluminum, continuing a bigger-is-better trend sweeping the metals industry.

Moscow-based Rusal, currently the world's third-largest producer of the light metal, is combining assets with smaller Russian producer Sual and alumina refineries owned by Swiss commodities trader Glencore International in a stock-swap.

The new company will make about 4 million metric tons of aluminum a year, narrowly edging out the 3.8 million produced by U.S.-based Alcoa Inc. (AA) . Alcoa's annual revenue is still more than twice that of the new company, however, at $26.2 billion compared with an estimated $12.2 billion in sales for United Company Rusal.

The new company will also produce 11 million metric tons of alumina a year, accounting for about 12.5% of global aluminum and 16% of global alumina output.

Rusal, which has been open about its aims of becoming top dog in the industry, said the transaction is "a logical step" in that strategy and presages other high-scale ambitions.

"The new joint company will be highly ambitious and today's announcement is a staging post towards our future objectives," said Rusal Chairman Oleg Deripaska in a statement.

Ongoing trend

The link-up continues a string of mega-mergers in the metals industry as firms, flush with cash from a recent run-up in commodities prices, look to build scale.

Three of the five-biggest metals mergers ever were announced this year, according to Thomson Financial. Leading the pack with an announced price tag of $43.6 billion, Mittal Steel Co. (MT) took over Arcelor SA to solidify its lead as the world's biggest steel company.

Glencore was involved in one of those as part-owner of Xstrata Plc, a Swiss mining conglomerate that fought a successful takeover battle for Canadian nickel miner Falconbridge Inc.this summer.
The trading firm has a storied history in the commodities metals markets. It was founded by Marc Rich, a billionaire commodities trader and former U.S. fugitive whose pardon by former President Bill Clinton in 2001 set off a storm of protest.

Under the terms of Russian deal, Rusal shareholder EN+ -- the holding company for Rusal and two Russian energy firms-- will own 66% of the new company. SUAL's shareholders will take 22% and Glencore will own 12%.

The companies expect to complete the deal by April 2007, subject to antitrust approvals, and take the merged company public in London within three years of the closing.

With aluminum smelters and refineries spanning the globe, it will employ 110,000 people in 17 countries.

Alcoa will still outrank its European competitor in alumina. Pittsburg-based Alcoa makes about 15 million metric tons of alumina -- the white powder that's turned into aluminum -- to United Company Rusal's 11 million tons.

"Regardless of what other companies were doing," said Alcoa spokesman Kevin Lowery, "we are focused on growing to meet the estimated doubling of demand for aluminum by 2020."

He says the forecasted consumption will require the industry to build 80 new smelters in the next 14 years. "Competition is always good, but we are focused on securing our growth in the marketplace," said Lowery.

The maker of Reynolds Wrap will report its third quarter earnings Tuesday. Alcoa shares closed up 0.9% to $27.99 on Monday.