Alcan rejects Alcoa, turns to BHP

Alcan Inc. has entered early-stage discussions with global mining giant BHP Billiton Ltd. as it looks to fend off an unwanted takeover attempt by U.S. rival Alcoa Inc., according to people familiar with the matter.

As expected, Montreal-based Alcan rejected Alcoa's $28.4-billion (U.S.) hostile offer Tuesday, arguing that it undervalues the company and is "highly conditional and uncertain."

Alcan took several jabs at Alcoa in a filing with regulators, highlighting everything from its "strategic challenges" to its weaker stock market performance. It also suggested that Alcoa threatened it with a hostile offer last fall, and said one of the main reasons Alcoa pushed for a deal was that it feared becoming a target itself.

But even this appearance of bad blood doesn't mean the deal is officially dead.

In an interview, Alcan chief executive officer Dick Evans said all options are being considered, and he refused to rule out any scenario — including one in which Alcan would turn the tables by launching its own bid for Alcoa.

"The operative word here is all," he said, adding that Alcan is in "ongoing discussions with other third parties."

Mr. Evans declined to identify them, but sources said BHP, the world's largest miner, has begun talks with Alcan. BHP approached the company about a possible union late last year, but was rebuffed, sources said. Rio Tinto PLC C has been cited by several industry observers as another logical suitor for Alcan.

Officials at Alcoa declined to comment, saying they were still studying Alcan's response.

When Alcoa tabled its bid earlier this month, it said it had been in intermittent merger talks with Alcan for the past two years. It also disclosed in regulatory filings that these discussions dissolved after Alcan insisted on signing a two-year standstill agreement—something Alcoa felt was far too long.

But Mr. Evans took issue with that characterization, saying the Alcoa offer was subject to far too many conditions.

He added that Alcan was never presented with a compelling offer that would have been in the best interest of its shareholders, and that Alcan's shares have gained 81 per cent over the past five years, while Alcoa's have increased 3 per cent.

"Some people might say this is a set of conditions looking for an offer," he said of Alcoa's current bid. "The Alcoa-Alcan [merger] has the highest degree of complexity. "There are many issues that are greater in this particular transaction than they would be in any other combination. That gets to the heart of why we did not carry forward with these discussions."

If the two companies joined forces, they would control approximately 20 per cent of global aluminum production. That has sparked concerns, particularly in the Alcan camp, that a merger could run into problems with antitrust authorities.

Alcoa has attempted to head off these concerns by approaching competition regulators in Canada, the United States and Europe. It has already drawn up a list of automotive and aerospace plants, primarily in Europe, that it would jettison in order to win approval for the deal.

But Alcan insisted winning this approval would be much more difficult than Alcoa has suggested.

"Alcoa has remained unable to articulate any clear plan for identifying and dealing with competition regulatory issues," the filings stated.

Alcan said it is worried about the potential impact of spinning off businesses, and whether this will be offset by the synergies the two companies could realize in a merger. Alcoa has suggested a merger could result in $1-billion worth of synergies, but Alcan said that figure does not accurately reflect previous discussions between the two companies.

According to Alcan's filing yesterday, Alcoa CEO Alain Belda told Mr. Evans last fall that the synergies could be 50 per cent higher.

Alcan also attempted to pour cold water on any