Behind Alcoa's Bid For Alcan, A Test Of Mettle

Alcoa Inc.'s bold $27 billion bid for Canadian rival Alcan Inc. may be Alain Belda's last chance to preserve his company -- and create a legacy -- before he retires.

Mr. Belda, Alcoa's 63-year-old chairman and chief executive, has been under pressure from Wall Street because the company's stock has fallen from a peak of nearly $46 a share in 2001 to trail behind that of other metal companies over the past six years, despite Alcoa's recent buyback programs and upbeat aerospace guidance and earnings reports. Alcoa shares ended at $38.03 Friday on the New York Stock Exchange.

Mr. Belda says the Alcan bid is about synergies and the need to compete better against emerging aluminum powerhouses from Russia and China. "We are facing an increasingly competitive global aluminum industry," he said, pointing to the emerging market competitors on a conference call with analysts and investors as the company launched the bid last Monday. "This proposal is based on its own merits and not in response to any approach to Alcoa," he said in the call.

Alcan says it is reviewing the offer and declines to comment on it at present.

But the lagging stock price has prompted talk that Alcoa was, and still is, a target of larger mining companies, which many believe is part of the reason Mr. Belda is going after Alcan. "I'm thinking the management did this as a defensive move," says Wayne Atwell, a former metals analyst at Morgan Stanley who is starting a hedge fund and betting that Alcoa shares will decline. "I think there is a 50% chance someone will make a bid for [Alcoa] before this is over."

Others believe the Alcan deal, if it goes through, could be Mr. Belda's effort to preserve Alcoa as a standalone company and leave on a high, and historic, note -- although Mr. Belda hasn't said anything publicly about retiring. "I'm sure he'd like to have it on the record that he accomplished this acquisition," says Leo Larkin, a metals analyst with Standard & Poor's. "He would probably like to be the one to get the credit for this particular acquisition if it actually happens."

Some analysts believe there could be a bid for Alcoa despite Mr. Belda's move. John Tumazos, a metals analyst at Prudential Equity Group, says Alcoa is "in play," with a 50% chance it successfully buys Alcan, a 10% chance it stays by itself and a 40% chance it is purchased by another company that sells off underperforming assets. One activist hedge fund and minor Alcoa shareholder, Jana Partners LLC, called for Alcoa to put itself up for sale. Jana says it purchased 3.29 million shares in Alcoa in the first quarter, or 0.38% of the company's outstanding shares.

The last few years should have been good times for Alcoa and Mr. Belda. Born in French Morocco to a Portuguese mother and Spanish father, Mr. Belda joined Alcoa's Brazilian affiliate in 1969 and moved up the ranks to head the Brazil operations. Then, as the hand-picked protege of then-CEO Paul O'Neill, he moved to corporate headquarters in Pittsburgh in the mid-1990s to become vice chairman, president and chief operating officer. He took the position of CEO in 1999 and then the further post of chairman when Mr. O'Neill left Alcoa to become treasury secretary for President Bush in 2000.

In the years since, aluminum prices reached record highs. Demand soared from China. Big aerospace companies were replacing their fleets and using aluminum to do so. Quarter after quarter, the company boosted revenue and posted healthy earnings. But Wall Street was unimpressed and thought the company was underperforming. Finally, once-patient investors defected. U.S. Global Investors Inc. sold its holdings in the company in the past year. "We have just had, in our opinion, better places to allocate our money. Nickel prices have gone ballistic in the last few years. Nickel stocks have done similarly well," says Evan Smith, a co-manager of the company's Global Resources Fund.

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