The world headquarters of Alcoa Inc.is seen along the north shore of the Allegheny River in Pittsburgh, in this May 7, 2007 file photo. - AP

Alcoa Inc. withdrew its US$28 billion offer to buy Canadian aluminum rival Alcan Inc. on Thursday after being outbid by mining giant Rio Tinto.

Rio Tinto's bid of $38.1 billion in cash, announced hours earlier, exceeded the unsolicited offer launched by Alcoa in early May and would create the world's largest aluminum company. Alcan's board rejected Alcoa's offer as inadequate.

Alcoa Chairman and CEO Alain Belda said Rio Tinto's bid "strongly reinforces our view of the underlying value in the aluminum industry and its bright prospects for the future."

"However, at this price level, we have more attractive options for delivering additional value to shareholders," he said.

Rio Tinto's offer is a 65.5 per cent premium over Alcan's closing share price before Alcoa's May 4 takeover bid, and an almost 33 per cent premium on Alcoa's offer, Rio Tinto and Alcan said in a joint statement.

Alcoa and Alcan were the world's top two aluminum producers until March, when Alcoa was eclipsed as the top producer by the Moscow-based United Company Rusal, which was formed through a three-way merger.

Underperforming businesses

Belda said Pittsburgh-based Alcoa will continue to "make targeted growth investments, trim underperforming businesses, and further enhance returns to shareholders by resuming our share-repurchase program," which was suspended amid the Alcan offer.

Alcoa made its hostile bid for Alcan after nearly two years of private talks failed to produce a negotiated agreement.

Alcoa shares rose $2.86, or 6.7 per cent, to $45.29 in Thursday's trading. It announced it was withdrawing from the bidding for Alcan after the markets closed.

- AP