Alcan capitalizes on Pechiney takeover (April 27, 2004)

Alcan (AL-T) figures it can squeeze an additional US$110 million in savings out of its recent, multi-billion-dollar takeover of French rival Pechiney.

In July, Alcan estimated that the integration of Pechiney would generate annual savings of US$250 million within two years. The company now expects annual savings to total US$360 million by the end of 2005.

Alcan CEO Travis Engen says the new estimate “follows several months of rigorous analysis by teams of employees and clearly re-affirms the benefits of our combination with Pechiney.”

Alcan intends to spend US$250 million on the amalgamation, and an additional US$90 million of capital spending is required to achieve efficiency targets.

The company expects to save 35% on purchasing costs, 30% on general and administrative costs, 22% on manufacturing costs, 6% by changing its product mix, and 7% on research and development.

The news in Queensland, Australia, is less rosy. Alcan has expressed “extreme disappointment and concern” over proposed legislation that would strip the company of its rights to the Aurukun bauxite reserves in the northern portion of that territory.

“Alcan holds good legal title to the Aurukun lease, and we believe in our right to retain it,” states Michael Hanley, president of Alcan’s Bauxite and Alumina Group.

The company says the government intends to bypass ongoing legal proceedings before the state’s Supreme Court, and that it, Alcan, is fully prepared to file a defence. “We object to their move to circumvent our right to defend our interests in a court of law,” the company asserts in a prepared statement.

Alcan acquired rights to Aurukun via its takeover of Pechiney, which was granted the rights to the bauxite deposits in 1975. The government claims Pechiney failed to meet a commitment to build a processing plant on-site by 1988. Legal action began in October 2003, with the government alleging Pechiney’s rights had expired and that the company had failed to surrender the project.

Alcan says the government’s decision to legislate a cancellation of the rights is “curious” given that the company recently offered to fast-track a A$15-million feasibility study of a bauxite mine and alumina refinery at Aurukun. The company says the government has not responded to its offer.

Once the legislation is passed, the government intends to place the Aurukun lease up for tender.

The Montreal-based aluminum giant has been in Queensland since 1965, and is a founding construction partner in Queensland Alumina, the world’s largest alumina refinery, in which it holds a 41.4% stake. The company’s Australian portfolio also includes the Gove bauxite mine and alumina refinery in the Northern Territory, a 51% stake in the New South Wales Tomago aluminum smelter, and the Ely/Ducie-Wenlock bauxite deposit, also in Queensland.

Alcan recently declared a quarterly dividend of US15 per share, payable on June 18 to shareholders of record on May 20.

Alcan has 368 million shares outstanding.