Alcoa offers to snap up Alcan

In early May, New York-based Alcoa Inc. made a hostile bid for Montreal-based Alcan Inc. The deal that Alcoa offered–US$73.25 per Alcan share to be paid in cash and Alcoa shares–has an enterprise value of about US$33 billion.

Alcan has seven bauxite mines and deposits in five (warm) countries, and 11 alumina plants in five countries including plants at Vaudreuil, Que., and Brockville, Ont. It operates or has interest in 22 aluminum smelters and nearby power facilities around the world, including in Alma, Arvida, Beauharnois, Bcancour, Grande-Baie, Laterrire, Sept-Iles and Shawinigan in Quebec, and Kitimat in British Columbia. Over 50% of its smelting capacity and 61.5% of its power capacity are nestled in Canada. Although Alcan started out in 1902 as a Canadian company (spun off from Alcoa), it has grown and globalized substantially over the years, including taking over the European companies Alusuisse in 2000 and Pechiney in 2003. Alcan has 68,000 employees in 61 countries, and posted revenues of US$23.6 billion in 2006.

Alcoa produces primary and fabricated aluminum and has alumina facilities. It has smelter operations around the world including in Baie-Comeau, Bcancour and Deschambault, Que. The company has 122,000 employees in 44 countries.

Would the takeover be a good thing? No, says Alcan. According to an Alcoa news release the two companies had discussed a friendly business combination for two years, but talks broke off last fall when the two could not agree on who would be the senior officers.

There is another possibility: a bidding war for Alcan, by other larger mining companies outside of Canada. What do you think: is this really a bid by Alcoa to regain its top spot from the (Russian) United Company Rusal, or perhaps to form a North American-based company that is too big to be taken over?

Whatever the case, does it make business sense to become bigger? Bigger is not automatically safer or more powerful, it’s not more efficient and it’s certainly not better. All it is, is bigger, more remote, and less in touch with employees and local concerns.

Why is it that Canada is one of the world’s richest countries in resources, and has the world’s largest mining finance centre in Toronto, but we are losing control over our senior metals companies? As soon as they get to a certain size, they are taken over by some larger non-Canadian company with deeper pockets. If this trend continues to its logical conclusion, Canadian resources will all be controlled by others.

As the owner of a modest number of Alcan shares, I stand to benefit from the play for Alcan, as I am bound to watch the share price rise. If/when Alcoa takes over Alcan, what am I going to do with my modest amount of cash and Alcoa shares? I will no doubt sell the Alcoa shares and reinvest the money in some Canadian company, but which one? I am running out of blue chip Canadian mining companies to invest in.

I can’t do much, but I can vote with my shares, and so can you if you agree with me.