EC okays Alcan bid with conditions

The European Commission has given the go-ahead for Alcan‘s (AL-T) 4-billion euro takeover of French Rival Pechiney, but not without some strings attached.

In its investigation of the proposed deal, the commission cited concerns for increased concentration in the flat-rolled aluminium products market, particularly in the beverage can sector. It also highlighted concerns related to the aerosol can and aluminium cartridge market. The commission was also leery about the combined entity’s dominance on the supply side, and refining, smelting and anode baking furnace technologies.

To allay those concerns, Alcan has agreed to divest of either of its half-share in AluNorf rolling mill (the balance of which is owned by Norsk Hydro) in Germany and its Gttingen and Nachterstedt rolling mills or Pechiney’s Neuf-Brisach rlling mill in France, Rugles foil mill, plus the Annecy rolling mill. Both packages comprise state of the art production facilities. The divestment deal also includes a purchaser option on Alcan’s Latchford casting house, which includes research and development resources.

The commission has also called for Alcan to eliminate any overlap the two companies might have in the aluminium aerosol can and aluminium cartridge market. It also requires Alcan to continue to license its various technologies at comparable rates following the transaction; Alcan would have to exit the anode baking furnace market altogether.

On the flip side, the commission also says that under the plan, any potential buyer would have to demonstrate its ability to maintain and developing the assets.

Under approval from the U. S. Department of Justice, Alcan must divest of Pechiney’s aluminum rolling mill in Ravenswood, West Virginia, addressing concerns over concentration of suppliers in the North American market for brazing sheet (a composite material used in automotive radiators). As part of the approval, the statutory waiting period under the U.S. Hart-Scott Rodino Act has expired.

In all, Alcan says the required divestments amount to about 5% of the new company’s combined, unaudited pro forma revenues.

Earlier in the day, France’s stock market watchdog, the Conseil des Marchs Financiers (CMF), declared Alcan’s recently sweetened offer for Pechiney “receivable,” meaning the new offer can be mailed to Pechiney’s shareholders.

Under Alcan’s final offer, Pechiney shareholders are offered 24.6 euros in cash plus 22.90 euros worth of Alcan shares for each Pechiney share or 10 Pechiney bonus allocation rights tendered. Alcan retains the option of covering the share portion of the deal with cash. The cash-and-share offer includes a bonus of 1 euro per share, provided 95% of the French rival’s shares are tendered.

Pechiney’s board recently approved the new bid, which topped Alcan’s original July bid valued at 41 euros per share at the time, and a subsequent proposal of 47-48 euros per share, both of which were immediately dismissed as too low. The final offer is conditional on the approval of more than half of Pechiney’s shareholders.

At press time, the deal still required approval from French bourse regulator, Commission des Operations de Bourse (COB); such approval is widely seen as a formality as CMF approval has already been awarded.

The deal sets the stage for Alcan to become the world’s biggest aluminum firm by sales. Alcan forecasts savings of around US$250 million within two years of closing, thanks to lower administrative and purchasing costs.

Shares in Alcan were off as much as 39 at $51.31 in early afternoon trading in Toronto following the news on Sept. 29. Pechiney shares ended 0.66 euro higher at 47.30 euros in Paris.