WMC rejects Alcoa bid

The board of directors of Australia’s WMC (WMC-N) has rejected a confidential approach by U.S.-based aluminum giant Alcoa (AA-N) to acquire all the outstanding shares in WMC for a A$10.20-per-share cash bid, calling the proposal “opportunistic.”

In response to Alcoa’s move, WMC has proposed separating its 40% stake in Alcoa World Alumina & Metals (AWAC) from its Olympic Dam, nickel and fertilizer divisions by forming two separately listed companies, which initially will be owned by existing shareholders.

WMC’s board believes that the market has not fully valued its assets and last year began divesting itself of its gold division. The board now partly attributes this undervaluation to the lack of recognition of its 40% interest in AWAC, which is the primary focus of Alcoa’s advances. Alcoa owns the remaining 60% of AWAC.

Says WMC Chairman Ian Burgess: “The lack of recognition is reinforced by certain provisions of the AWAC agreement between WMC and Alcoa, which might have the effect of restricting competition for the control of WMC should Alcoa proceed to make a takeover offer, despite the provisions being subject to conflicting interpretations.”

WMC is concerned that, should Alcoa make a formal bid for WMC, there would be no counter-offers and that shareholders would consequently receive a price of less than the full value.

WMC’s board evaluated the Alcoa proposal with the assistance of Deutsche Bank and sought an independent valuation from Grant Samuel & Associates, which concluded that WMC is worth in the range of A$11.18-12.91 per share. The board has determined that if Alcoa were to make an offer of A$10.20, it would be neither fair nor reasonable. “The board regards the proposal as an opportunistic attempt to capitalize on the recent downturn in world conditions and base metal prices,” states Burgess.

The board believes shareholders would be best-served by a “de-merger,” which would serve to eliminate any of the perceived uncertainties posed by the AWAC agreement on the valuation of its three other wholly owned businesses.

The Olympic Dam, nickel and fertilizer businesses will be held in a separately listed company owned by WMC shareholders. A second new listed company, also owned by WMC shareholders, would be established to hold WMC’s 40% stake in AWAC.

“The board is confident the stock market will more appropriately value the two separately listed entities and that, in the event of a takeover offer for either or both of the separately listed companies, a fair and reasonable offer will be more readily obtained,” says Burgess.

The de-merger proposal will require the approval of shareholders and the courts.