Based on Alcoa's closing stock price on May 4, the offer has a value per Alcan share of approximately US$73.25 and, including debt, values Alcan “enterprise-wide” at US$33bn (€24.4bn). The combined company would, Belda said, employ some 188,000 in 67 countries, while Alcoa expects the combination to generate pre-tax cost synergies of around US$1bn (€739m) annually “once fully implemented in the third year following closing”. Key expected sources of synergies include operational improvements in smelting and refining, reductions in sales, general administrative and plant costs, and enhanced procurement. On an aggregated basis for 2006, the combined company would, Belda revealed, have had revenues of US$54bn before synergies.
Responding to the bid, Alcan recommended its shareholders “defer making any decision until the Board has had an opportunity to fully review the expected offer and to make a formal recommendation as to its merits”.
Alongside being one of the world leading alumina, aluminium and bauxite producers/suppliers, Alcoa has sizeable Packaging and Consumer operations (employing 10,000 staff in 22 countries), not only (in 2005) shipping enough aluminium container sheet to produce 100bn aluminium recyclable aluminium cans annually, but also manufacturing closure systems (through its Alcoa Closure Systems International business), flexible packaging such as foils, films, wraps, bags, pouches and blister packs, lidding materials, and foodservice and agricultural packaging.
In late April Alcoa announced plans to “explore strategic alternatives” for the disposal of the Packaging and Consumer segments, which generated some US$3.2bn in revenues and US$95m in after-tax operating income in 2006, representing around 10% of Alcoa's 2006 revenues. Belda said at the time: “Our packaging and consumer business is improving and strengthening; in fact first quarter earnings more than doubled compared to the prior year as the benefits of our restructuring programme are hitting the bottom line. However now is the right time to explore whether these businesses may provide more value on their own or as part of another company.”
Alcan has significantly expanded its own packaging presence in the past few years, and claims to have become a world-leader in food, pharmaceutical, beauty and tobacco packaging. It claims to be the world's second largest specialty packaging supplier, and number one in food flexible, pharmaceutical, beauty and tobacco packaging
In 2006 its Packaging group employed 31,000 staff at 130 sites in 35 countries, with plastics packaging accounting for around 60% of business, followed by aluminium packaging (26%), and packs made from paper, paperboard and steel.
Alcan packaging operations produce food packaging for dairy products, petfoods, fresh and frozen foods, beverages, meats, dry goods, retorted foods and snacks, while pharmaceutical output includes caps and closures, folding cartons, ampoules, glass vials and tubing, medical flexible packaging, plastic bottles and “science” products. Beauty packaging products include collapsible tubes, plastic fragrance packs and shells, mascaras, beauty promotional items and aluminium cans and bottles. The group, which has sites throughout Europe, North Africa, the US, South America, Asia and the Far East, recorded 2006 profits of US$550m.
Speaking on bid's unveiling, Alcoa's Belda said while Alcan had indicated its wish to “hold on to its packaging operations”, it was at this stage “too early to speculate” on the future strategy or direction for these businesses. “This offer follows almost two years of discussions between our companies regarding a variety of potential business combination transactions, including unsuccessful Board-level discussions of a merger transaction last autumn,” he explained. “We were very disappointed those efforts did not result in a negotiated transaction - a conclusion we would have strongly preferred. We believe firmly in the compelling strategic rationale behind the combination of Alcoa and Alcan and are convinced that this transaction creates substantial value for both sets of shareholders and for customers around the world. We are therefore taking our offer directly to Alcan shareholders.”
Belda added that with a changing global marketplace the two companies would, if combined, be in a much stronger position to invest, develop profitable growth and provide a first-class service to customers themselves having a worldwide presence. Aluminium demand worldwide alone was, he said, expected to double over the next 15 years, largely as a result of “massive growth” in demand in developing economies like China and India.
Should the deal go ahead Alcoa says the combined business will have “dual head offices” in Montreal and New York.
