Alcoa says Alcan bid meets Quebec requirements on power, water

OTTAWA — Alcoa Inc. says its acquisition bid for Alcan Inc. easily meets the requirements in Alcan's hydroelectric and water agreement with Quebec, as the American metal giant attempts to get over an important hurdle in its proposed deal.

In a letter to Alcan's board of directors, New York-based Alcoa said it has reviewed Alcan's deal with the province and that the U.S. company's proposal exceeds the deal's requirements. An Alcoa news release said the combined companies would enjoy an improved position in the global aluminum industry and a reinforced position as an industrial centre.

"We have reviewed the agreement and are very comfortable assuming all of Alcan's existing obligations and other commitments to the Province of Quebec," said Alcan chief executive Alain Belda. "We remain hopeful that Alcan's board of directors will conclude that Alcoa and Alcan are uniquely suited to each other and, together, we will be better positioned to compete in the industry."

Alcoa announced last week that it had launched a $27-billion (U.S.) hostile takeover bid for Alcan, the latest acquisition attempt in recent years in the metal sector. The pending merger of two Russian aluminum makers threatens to push Alcoa out of top spot and adding Montreal-based Alcan, the world's second-largest aluminum producer, would restore Alcoa's position.

But the possible sale of Alcan raises political questions in its home province.

The company, with 2006 sales of about $25-billion, is one of the two largest based in Quebec. And Alcan's hydroelectric generating stations, which provide cheap electricity to run smelters, depend on water leases granted by the provincial government that can be altered in case of a change in ownership.

That agreement, which prompted Alcoa's letter to Alcan's board, gives Quebec some leverage in trying to ensure that Alcan operations and jobs remain in the province.

Quebec and Alcan also signed a deal in December under which the government will give the company a $400-million (Canadian) interest-free loan, $112-million in tax breaks and more free electricity in exchange for investing $2-billion in the Saguenay.

Alcoa, however, also has Canadian roots that go back more than a century.

The U.S. company first entered Quebec in 1901. Then called the Aluminum Co. of America, it built an entire town in the 1920s in the province's Saguenay region that became home to the world's largest smelter. U.S. anti-trust authorities, however, later forced Alcoa to spin off its Canadian assets into a separate company called the Aluminium Co. of Canada.

Mr. Belda has said recently that his plan calls for Montreal to be home to Alcoa's primary aluminum division, which oversees smelters around the world. Montreal would also play a central role in research and development.