Alcoa Aims To Warm Canada To Alcan Bid

Alcoa Inc. plans to invest as much as $7 billion at several Canadian plants as part of its bid for rival Alcan Inc., a move it hopes will help win the backing of Canadian officials sensitive to losing another prized metals and mining company to foreign ownership.

Alcoa also said Alcan would have "significant board representation in the combined company" if its $27.49 billion cash-and-stock offer goes through. Alcoa officials didn't provide specific numbers. While some Canadian officials appear to be warming to Alcoa's bid, others still object.

Meanwhile, one activist hedge fund with a stake in Alcoa wants the U.S. company to drop the bid altogether and put itself up for sale. The protest by Jana Partners LLC comes as investors have generally cheered the deal. Alcoa's shares rose 87 cents, or 2.3%, to $39.50 yesterday in 4 p.m. New York Stock Exchange composite trading, amid continuing speculation over further deals. Alcan shares were down $1.83, or 2.2%, to $80.28 on the NYSE.

Jana declined to specify how large a stake it holds in Alcoa. It doesn't list its holding with federal securities regulators, meaning it falls below the disclosure threshold of 5%.

"Given Alcoa's long history of failing to generate shareholder value through acquisitions, we believe that its greatest value can be realized through a sale or breakup of the company," said Jana Managing Partner Barry Rosenstein in a letter to Alcoa's Chairman and Chief Executive Alain Belda. The firm describes itself as an activist shareholder with offices in New York and San Francisco and with more than $7.5 billion in assets under management.

"We have 867 million shares in our company," said Alcoa spokesman Kevin Lowery, playing down Jana's ownership stake and relevance.

In a filing with the Securities and Exchange Commission, Alcoa said it will invest in four existing Alcan plants and two existing Alcoa plants over an undisclosed period of time. Alcoa said its investment in Quebec would be "the single-largest private sector investment program in Quebec's history to date."

Canada's backing of Alcoa's offer is critical. Government officials could block the sale under the Investment Canada Act if they determine that the transaction, on balance, doesn't offer a net benefit to Canada. More specifically, Alcoa needs approval from the province of Quebec, which could cancel $500 million in interest-free loans and tax incentives if Alcan's head offices are moved from Montreal. Other agreements for water rights and power in Quebec for Alcan also could be affected.

Alcoa's bid comes in the wake of several recent transactions that have resulted in the transfer of rich natural resources and big industrial companies to foreign owners. In the past year, Canadian steelmakers Dofasco Inc., Algoma Steel Inc. and Ipsco Inc. have been purchased by non-Canadian rivals. Stelco Inc. is also considered a takeover candidate. Fewer gold producers remain in Canada as consolidation within Canada has taken place, removing names such as Bema Gold Corp. and Glamis Gold Ltd. last year. Canadian miners including Inco, Falconbridge and Noranda have been snatched up and Toronto-based LionOre Mining International Ltd. is being pursued by a Russian nickel producer.

Yesterday Canadian Finance Minister James Flaherty rebuffed demands that he take steps to protect Canadian companies from foreign takeovers, arguing that Canadian companies are internationally competitive. "Canada is not in the business of erecting walls. We want to encourage Canadian companies to expand their economic base," said Michael M. Fortier, the federal cabinet minister responsible for Montreal. "We have to accept the fact that some of our own companies will be acquired by foreigners."

But the government is closely monitoring the Alcoa bid. "Given that Alcan is a symbol of the strength and vitality of the Quebec economy, the government will obviously be following the matter very