Alcoa request falls on deaf ears at Alcan

The board of Alcan Inc. will rebuff calls to immediately begin considering whether a hostile $28.3-billion (U.S.) takeover bid meets conditions required by the Quebec government to maintain the company's access to cheap hydro power and water rights in the province, sources said, a move that could cloud Alcoa Inc.'s offer in uncertainty for months.

In a letter addressed to Alcan chairman Yves Fortier, Alcoa chairman and chief executive officer Alain Belda urged Alcan's board to start examining at once whether the Pittsburgh rival's takeover plans comply with the so-called "continuity agreement."

"It is in all parties' interests for you to commence such consideration at this time," Mr. Belda said.

However, under the agreement negotiated between the company and the province last year, Alcan's board is not obligated to start deliberating on whether the bid meets the accord's requirements until the takeover is approved by all relevant regulatory and competition authorities.

Alcoa plans to create the world's largest producer of the metal with control of roughly 23 per cent of the global aluminum market, but it will need the green light from Canadian, European and U.S. antitrust regulators. That process is expected to drag on well into the summer, if not beyond.

Montreal-based Alcan's board is busy readying its formal reply to the bid launched earlier this month and has no intention of accelerating the timeline for Alcoa, say people familiar with the matter. "The board first needs to focus on its response to the offer," said a source close to the company.

Once Alcan's board has decided whether it believes a takeover bid complies with the continuity agreement, the government can make its own ruling. Quebec has the right to cancel certain water and power rights Alcan secured under the agreement signed last year if it determines that an Alcan takeover would cause the province to lose the company's head office or operational, financial and strategic activities.

As part of its commitment to Quebec, where it already has extensive operations, Alcoa plans to invest about $5-billion in the province and headquarter its primary aluminum business in Montreal. It also plans to have dual head offices in Montreal and New York.

"Our proposals fulfill the letter and spirit of the continuity agreement and no one else can match the benefits we offer to Alcan's stakeholders," wrote Mr. Belda.

Alcoa launched an unsolicited takeover bid for Alcan after two years of merger negotiations between the two sides broke down.

Days after Alcan walked away from the deal table it announced a massive investment to build a new smelter and other facilities in the Saguenay region of Quebec worth $2-billion (Canadian) in all. The Montreal-based company secured a $400-million interest-free loan and $112-million in tax incentives from the province as well as extensions of power contracts and water rights that Alcan uses to generate electricity at its hydro stations.

Aluminum smelters require huge amounts of electricity and Alcan's access to cheap power is a competitive edge.