Alcan retargets Pechiney

Looking to cut costs and entrench itself in the aerospace supply industry, Montreal-based aluminum giant Alcan (AL-T) is taking another run at French rival Pechiney via a cash-and-stock offer totalling E3.4 billion.

The world’s second largest aluminum maker is offering three of its own shares plus E123 in cash for every five Pechiney shares. The deal values the French company’s shares at E41 apiece, a 20.5% premium over their E34.02 closing price on July 4. The deal’s total value climbs to E4.8 billion when Pechiney’s debt is included.

The bid also includes two subsidiary offers, a cash offer of E41 per Pechiney share, and another comprising three Alcan shares in exchange for two Pechiney shares.

Pechiney immediately said it was surprised at the unfriendly approach of the offer, which "seriously undervalues the strategic potential of the Pechiney Group." The company also said in a prepared statement that there were no talks between the two sides prior to Alcan’s bid announcement.

Alcan’s offer comes about three years after a scuttled three-way merger deal involving itself, Pechiney, and Swiss group Alusuisse Lonza (Algroup). Pechiney dropped out of that plan under pressure from the European Union; Alcan went on to acquire Algroup.

Earlier this year, Pechiney had its planned E750-million acquisition of Corus Group’s aluminium assets blocked by the London-based steelmaker’s Dutch arm.

Alcan says it has already begun talks with the European Commission aimed at overcoming competition concerns and has agreed to sell off assets comprising up to 5% of the combined entity’s potential sales. Those assets include Alcan’s half-owned AluNorf rolling mill (the balance is owned by Norsk Hydro) in Germany or Pechiney’s Neuf-Brisach rolling mill in France.

The bundling of these two mills, and Alcan’s refusal to sell off control in either, was a major stumbling block in its last attempt at joining forces with Pechiney. Alcan says it will also sell some of its packaging assets, if regulators deem it necessary.

While Pechiney says the outcome of the proposal is uncertain, and has "negative implications for the company, its employees and its shareholders," its board will soon meet to review the offer.

If Alcan’s bid proves successful, the resulting entity would sport revenues of US$24 billion, based on 2002 figures, leapfrogging Pittsburgh-based Alcoa (AA-N), which turned in sales of US$20 billion last year. The combined group would still rank second to Alcoa based on market capitalization and primary aluminium production.

Alcan expects the deal to generate annual savings of around US$250 million within 2 years of closing, thanks to lower administrative and purchasing costs.

Along with the potential savings, Alcan has its eyes on Pechiney’s position as the second-largest supplier to the aerospace industry after Alcoa, covering half of Airbus’ aluminum components needs and a quarter of Boeing’s requirements. Pechiney also has an 80% share of the market for smelter technology and service contracts, and supplies 40% of the European can maker market.

Subject to regulatory approval, and at least half of Pechiney’s fully diluted shares being tendered, Alcan expects to complete the transaction in 4 to 5 months. The new group would have its worldwide headquarters in Montreal, with packaging and European primary aluminum businesses headquartered in France.