Looking to cut costs and entrench itself in the aerospace supply industry, Montreal-based aluminum giant
The world’s second-largest aluminum maker is offering three of its own shares plus 123 euros in cash for every five Pechiney shares. The deal values the French company’s shares at 41 euros apiece, a 20.5% premium over their 34.02-euro closing price on July 4, the last trading day before the offer. The deal’s total value climbs to 4.8 billion euros when Pechiney’s debt is included.
The bid includes two subsidiary offers — a cash offer of 41 euros per Pechiney share, and another comprising three Alcan shares in exchange for two Pechiney shares.
Pechiney immediately expressed surprise at the unfriendly approach of the offer, which it said “seriously undervalues the strategic potential of the Pechiney Group.” The French company also indicated that there had been no talks between the two sides prior to Alcan’s bid.
The quickly issued statement also pointed out that the outcome of Alcan’s proposal is uncertain and has “negative implications for the company, its employees and its shareholders.” That message was reiterated following a review of the offer by Pechiney’s board a day later.
Pechiney said in a message to shareholders: “The price proposed by Alcan is clearly inadequate when taking into account the company’s industrial, technological and intangible assets, and in no way reflects its true strategic value.”
Alcan’s offer comes about three years after a scuttled 3-way merger 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 750-million-euro 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 of which is owned by Norsk Hydro) in Germany or Pechiney’s Neuf-Brisach rolling mill in France.
The control of these two mills, together with Alcan’s refusal to sell off control in either, was seen as a major stumbling block in its last attempt to join forces with Pechiney. Alcan says it will also sell some of its packaging assets, if regulators deem it necessary.
If Alcan’s bid proves successful, the resulting entity would sport revenue of US$24 billion, based on each company’s performance in 2002. That would put it ahead of Pittsburgh-based
Alcan expects the deal to generate annual savings of around US$250 million within two 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’s 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 tin-making market.
Subject to regulatory approval and to at least half of Pechiney’s fully diluted shares being tendered, Alcan expects to complete the transaction by early October. The new group would have its worldwide headquarters in Montreal, with packaging and European primary aluminum businesses headquartered in France.
Alcan expects the European Commission to hand down its decision by mid-month.
Separately, Pechiney has struck a deal to acquire the 65% interest in the Aluminum Dunkerque smelter it does not already own by buying out its partners for 250 million euros. The deal includes the assumption of about 135 million euros in debt.
The plant supplies aluminum slabs to Pechiney’s Neuf-Brisach mill, which sells to the beverage tin and automotive industries. Its addition will boost Pechiney’s smelting capacity by about 17%.
Investors seemed to agree with Pechiney’s assessment of the bid, pushing the company’s shares above the offer price. Shares in Pechiney ended at 43.19 euros on July 9. Alcan shares were trading at $31.04 at midday in New York; the shares were at $42.67 in Toronto.
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