Should Alcan Turn the Tables on Alcoa?

As aluminum giant Alcan considers how to react to the hostile $27 billion from Alcoa, an analyst at Prudential Equity Group has a suggestion that harkens back to the era when legwarmers were the height of fashion (though we hear they are making a comeback). The analyst, John C. Tumazos, is floating the idea that terms of the deal could be flipped so that Montreal-based Alcan buys New York-based Alcoa. Such a tactic first gained currency in the 1980’s, when it became known as the Pac-Man defense, after the popular video game in which the player could change roles and go after his or her pursuers.

A bid by Alcan for Alcoa might go a long way toward soothing nationalist concerns in Canada and especially in the province of Quebec, where lawmakers are very touchy about the possibility of a foreign firm buying one of the last large Montreal-based companies. Alcoa has its headquarters in New York and what it calls its “corporate center” in Pittsburgh.

In general, the analyst wrote, “legal, regulatory and political issues might improve” with Alcan as the buyer and Alcoa as the bought. Mr. Tumazos even suggests that, with as Alcan the acquirer, the combined company could find it easier to launch new ventures in Europe and the Middle East. “Maybe,” he writes, “Alcan had five when Alcoa [had] just one new smelter project because Canadians are not unpopular in the world these days […] Simpler regulatory issues in Europe might sidestep anti-Americanism if Alcan were the buyer. New Mideastern deals might evolve more smoothly.”

Alcoa and Alcan have a long history together. The Canadian company was founded in 1902 by the Pittsburgh Reduction Company, Alcoa’s predecessor. While Alcan was spun off as a separate company in 1928, the two companies maintained cross ownership until the arrangement was ended by court order in 1951.

Given Alcan’s long resistance to Alcoa’s advances — talks about a friendly deal dragged on for nearly two years before Alcoa decided to go hostile earlier this month — why didn’t Alcoa’s investment bankers suggest that Alcoa agree to be the target instead? Mr. Tumazos speculates that “Alcoa’s financial and legal advisors did not press such advice out of fear of offending the client.”

At least one hedge fund, Jana Partners, thinks Alcoa should be prey rather than predator, as DealBook noted last week. Jana managing partner Barry Rosenstein said that selling or breaking up the company is a better option for shareholders and called the Alcan bid “ill-advised.”