Three aluminum giants enter into merger

In the biggest cosolidation move yet in the international aluminum industry, Alcan (AL-T) is taking the lead in a merger with two large European aluminum producers.

The Montreal-based company announced it had reached an agreement with French aluminum producer Pechiney (PY-N) and Swiss group Alusuisse Lonza (Algroup) to form a new company, tentatively called APA, which would be the largest aluminum producer in the world by revenue, and the second-largest by market capitalization.

The new company, 44% of which would be owned by Alcan shareholders, would command sales of about US$21.6 billion, dwarfing the US$15.5 billion that industry leader Alcoa (AA-N) posted in 1998. Pechiney shareholders would control about 29% of APA, and Algroup shareholders the remaining 27%.

Alcoa’s market capitalization would remain the largest in the industry, at US$23 billion, compared with the new group’s US$19 billion.

The agreement, as it stands, distributes shares in the new company to Pechiney and Algroup shareholders. Pechiney’s A-series shares, traded in Paris, will be tradable for 1.78 Alcan, their preferred shares for 1.96 Alcan, and their American Depository Receipts, traded in New York, for 0.89 Alcan. Algroup shares, 23% of which are held by Swiss industrial conglomerate BZ Gruppe, will be tradable for 20.63 Alcan shares.

The merger also includes provisions for Algroup to spin off its Lonza chemicals unit as a public company. Pechiney, which took part of its American National Can subsidiary public last month, will be divesting the 45.5% of ANC it still owns.

The merger proposal still requires the approval of Pechiney’s Workers’ Council, and will probably be scrutinized by competition regulators in the European Union and the U.S.