Alcan Inc. president and Chief Executive Dick Evans speaks to shareholders at the company's annual meeting in Montreal on April 26. Alcoa has launched a hostile takeover of its Canadian rival and Alcan said Monday it would consider the proposal and advised shareholders to await its review. - Reuters

Alcoa said on Monday it would make a hostile bid for Canada's Alcan Inc. for nearly US$27 billion, net of debt, after talks between the aluminium rivals failed to lead to a deal.

If successful, the bid of US$73.25 per share in cash and stock would create the world's largest producer of the metal that is used for products ranging from beverage cans to airplanes, cars and heavy machinery parts.

Alcan said it plans to consider the proposal and advised shareholder to wait until it has fully reviewed the offer. Shares of both companies rose on the news.

"I just think that Alcan was perennially undervalued and it was inevitable something like this would happen," said John Redstone, analyst at Desjardins Securities.

An Alcoa-Alcan combination would put its production capacity well above that of Russian rival United Company RUSAL, which was formed from the link-up of RUSAL, Russian SUAL, and assets of Swiss-based Glencore International.

Deal expected

Given the size of the two North American companies, a deal is expected to draw scrutiny from regulators, and Alcoa said it was prepared to sell off assets to win approval.

Alcoa said its move comes after nearly two years of merger discussions between the companies that failed to a yield an agreement. It put the enterprise value of the deal at US$33 billion, including US$6 billion in debt.

"We are very disappointed that those efforts did not result in a negotiated transaction - a conclusion we would have strongly preferred," said Alain Belda, Alcoa chairman and CEO, adding, "therefore we are taking our offer directly to Alcan shareholders."

Alcoa, which is the world's largest aluminium seller in terms of revenues, said the combined company would see finished aluminium production capacity of 7.8 million tonnes compared to RUSAL's four million tonnes.

Its alumina capacity, the raw material used for the metal, would be 21.5 million tonnes versus RUSAL's 11 million tonnes of capacity.

The bid of US$58.60 in cash and 0.4108 per share of Alcoa common stock would represent a 32 per cent premium to Alcan's average closing price on the New York Stock Exchange over the last 30 trading days.

Alcan Inc.'s shares surged 33.6 per cent to US$81.54 per share on the New York Stock Exchange and 20 per cent to C$87.47 on the Toronto Stock Exchange in early trade.

Alcoa shares gained 1.9 per cent to US$37.57 per share in New York.

ANTITRUST HURDLES

Australian rival BHP Billiton had been cited by analysts as a more likely buyer for Alcan, largely because of expected difficulties of getting regulators to approve an Alcoa-Alcan link-up.

"It seems like a lot of people were talking about Alcan as a potential takeover. I don't think Alcoa was ever viewed as a likely purchaser just because of the antitrust reasons," said David Whetham, resource fund manager at Scotia Cassels.

In a letter from Belda to Alcan CEO Richard B. Evans made public on Monday, the Alcoa chief said that the companies had discussed those issues last year, and were confident they could resolve any regulatory concerns.

"At that time, we both believed that any antitrust issues raised by an Alcoa-Alcan combination could be solved through targeted divestitures and by working with regulators to address competitive concerns," Belda wrote.

"We have already engaged some regulators on a preliminary basis and plan to move expeditiously to address these issues in order to close this transaction at the earliest possible date."

Alcoa expects a merger of the two companies, which it hopes to complete by the end of the year, would create cost savings of US$1 billion per year after three years.

Earlier this year, Alcoa's shares soared on reports that BHP Billiton and Rio Tinto Limited were looking to acquire the U.S. aluminium giant.

Alcoa said the new company would have dual head offices in New York and Montreal and would have had combined revenues of US$54 billion on an aggregate basis in 2006.

Alcoa last month said it may sell three of its units, in a move that would help the company focus on its core aluminium production operations.

- Reuters