Alcoa: Alcan plan should appease Quebec

Alcoa Inc., seeking to become the world's largest aluminum producer, said its intention to expand investments in Quebec should satisfy the province and pose no barrier to a proposed $27 billion takeover of Alcan Inc.

Alcoa's commitment that the combined company will invest $5 billion in the Canadian province and create dual headquarters in Montreal and New York "not only meets but exceeds" conditions imposed by Quebec in deals signed last year with Alcan, Alcoa CEO Alain Belda said Thursday in a letter to Alcan Chairman Yves Fortier.

To preserve cheap power rates and long-term water rights from the province, Montreal-based Alcan or a potential acquirer would be required to maintain operational, financial and strategic activities in Quebec. Alcoa said the $5 billion in projects would be Quebec's largest-ever private sector investment. It has committed to basing its key primary-metals unit in Montreal.

"We understand that the continuity agreement permits you to defer consideration of our proposals for Quebec until a later date," Belda said to Fortier in the letter, which Alcoa disclosed in a statement. "We believe, however, it is in all parties' interests, including those of Quebec, for you to commence such consideration at this time."

Alcan's board said on May 8 it will consider Alcoa's bid. Under Securities and Exchange Commission regulations, Alcan must formally announce by May 22 whether it's recommending or rejecting the offer. Under the conditions of the agreement with the Quebec government, Alcan's board has "no obligation" to consider Alcoa's Quebec proposals before all regulatory approvals for the deal have been met, which could take months.

The Montreal Economic Institute, a non-partisan think tank, estimates the advantages Quebec gave Alcan in last year's agreement will cost the province about $3 billion. That is about equivalent to a subsidy of $301,772 per job per year during 35 years for the 740 jobs at the new plant in Quebec that Alcan is constructing as part of $2 billion in new investments, the institute said.

Alcoa made a $33 billion unsolicited bid for Alcan on May 7 after two years of talks failed to create what Alcoa called a merger of equals. In negotiations held last fall, the two companies went as far as assigning senior management positions and naming the new company before Alcan ended talks in December, days before it signed the power and water rights deal with Quebec, Alcoa said in a regulatory filing on May 8.