Alcan bid approved

The European Commission has given the green light to Alcan‘s (AL-T) 4-billion-euro takeover of French rival Pechiney (PY-N), but not without some strings attached.

In its investigation of the proposed deal, the commission cited concerns of increased concentration in the flat-rolled aluminum products market, particularly in the beverage can, aerosol can, and aluminum cartridge sectors. The commission was also leery about the combined entity’s dominance on the supply side and in refining, smelting and anode baking furnace technologies.

To allay those concerns, Alcan has agreed to sell off either its half-share in the AluNorf rolling mill (the balance of which is owned by Norsk Hydro) in Germany and its Gottingen and Nachterstedt rolling mills or Pechiney’s Neuf-Brisach rolling mill, Rugles foil mill, and Annecy rolling mill. The divestment deal includes a purchaser option on Alcan’s Latchford casting house, which includes resources for research and development.

The commission has called for Alcan to eliminate any overlap the two companies might have in the aluminum aerosol can and aluminum cartridge market. It also requires Alcan to continue to license its various technologies at comparable rates following the transaction. For its part, Alcan has agreed to exit the anode baking furnace market altogether.

On the flip side, the commission says any potential buyer will have to demonstrate its ability to maintain and develop the assets.

Alcan is also required to sell off Pechiney’s aluminum rolling mill in Ravenswood, W.Va., to prevent concentration of suppliers in the North American market for brazing sheet (a composite material used in automotive radiators).

In all, Alcan says the required divestments amount to about 5% of the new company’s combined, unaudited pro forma revenue.

Earlier in the day, France’s stock market watchdog, the Conseil des Marches Financiers (CMF), declared Alcan’s recently sweetened offer for Pechiney “receivable,” meaning the new offer can be mailed to Pechiney’s shareholders.

Under Alcan’s final offer, Pechiney shareholders are offered 24.6 euros in cash plus 22.90 euros worth of Alcan shares for each Pechiney share or 10 Pechiney bonus allocation rights tendered. Alcan retains the option of covering the share portion of the deal with cash. The cash-and-share offer includes a bonus of one euro per share, provided 95% of the French company’s shares are tendered.

Pechiney’s board recently approved the new bid, which topped Alcan’s original July bid valued at 41 euros per share, and a subsequent proposal of 47-48 euros per share, both of which were immediately dismissed as too low. The final offer is conditional on the approval of more than half of Pechiney’s shareholders.

At press time, the deal still required approval from French bourse regulator Commission des Operations de Bourse (COB). Such approval is widely seen as a formality, as CMF approval has already been awarded.

The deal sets the stage for Alcan to become the world’s biggest aluminum firm in terms of sales. Alcan forecasts savings of around US$250 million within two years of closing, thanks to lower administrative and purchasing costs.