NEW YORK -- A Prudential Equity Group analyst on Wednesday said Alcoa Inc. could lift its unsolicited $27 billion bid for aluminum maker Alcan Inc., and that Alcoa itself might become a buyout target.
Canada's Alcan, which said it would consider the offer, which New York-based Alcoa made Monday.
In late afternoon trading, shares of Alcoa declined 81 cents, or 2.1 percent, to $38.69, after rising 11 percent in the week through Tuesday's market close. Shares of Alcan dropped $1.97, or 2.5 percent, to $78.31, after rising 30 percent Monday and Tuesday.
Prudential Equity Group LLC analyst John C. Tumazos lifted his rating on Alcan to "Neutral Weight" from "Underweight" and raised his target price to $85 from $48, implying upside of nearly 6 percent from Alcan's Tuesday closing price of $80.28.
Alcoa said a combination of the companies would result in pretax cost savings of about $1 billion in the third year after the deal closes. Tumazos said that translates into a reduction of 6 cents per pound of aluminum production.
The companies have plenty of potential for combined cost savings, since both companies have most of their administrative or research overheads in the U.S. or Canada, and both rely on raw materials that mostly come from Australia, the analyst added.
The deal faces some regulatory concerns, such as overlap in the aerospace market, he said. If the deal doesn't get regulatory approval, private or international bidders may emerge for Alcan, the analyst said. There is also a chance that Alcoa will boost its bid, added Tumazos.
"Alcoa has paid Alcan the greatest professional compliment possible in acknowledging its superior outlook and competitive position," the analyst wrote.
Tumazos rates Alcoa at "Neutral" with a $38 target price.
"Other companies may bid for Alcan, or predators may seek to break up Alcoa to pay down merger costs from sales of Alcoa's underperforming units," he wrote.
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