If Alcoa's hostile bid for fellow North American aluminium producer Alcan were to succeed the merged company would be "a formidable force," but the move still has a number of hurdles to overcome, Barclays Capital said Tuesday.
On Monday Alcoa launched a hostile bid for Alcan worth $33 billion enterprise value in a move that caused Alcan's shares to surge 12% above Alcoa's offer price.
The transaction, if successful, would create the world's largest primary aluminium producer, though Alcoa said only that it would "create a premier diversified global aluminium company, with a complementary portfolio of assets and enhanced growth opportunities, and better position the combined company to build value for shareholders."
On an aggregate basis for 2006, the combined company would have an aluminium capacity of 7.8 million mt/year and alumina capacity of 21.5 million mt/year, based on 2006 combined capacity. By comparison, the merged entity created by Rusal, Sual and Glencore's assets has annual aluminium production of around 4 million mt and alumina production of 11 million mt, though both Alcoa and Rusal have unused capacity and are rapidly expanding with new projects.
Alcan said its board would consider the proposal, recommending that its shareholders defer making any decision until the board has had an opportunity to fully review the expected offer.
Alcoa's move "reflects a wind of consolidation that is blowing through the aluminium market," Barclays said in its daily commodities briefing, citing the 2003 Alcan takeover of French producer Pechiney and last year's Rusal/Sual/Glencore tie-up, while noting that China's Chalco has also been busy building its portfolio with a number of domestic and international purchases.
"It would appear that in the current aluminium industry it is 'eat or be eaten,'" Barclays said, adding: "It is likely that Alcoa was only too aware that if it didn't grow itself, it could rapidly slip down the ladder of major producers and/or be subject to takeover."
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