Alcoa shifts focus from WMC

U.S. aluminum giant Alcoa (AA-N) doused any expectations that it would sweeten its bid for Australia’s WMC (WMC-N), instead saying it plans to “turn its attention to other growth initiatives elsewhere in the world.”

In a letter to WMC’s CEO Hugh Morgan, Alcoa’s CEO Alain Belda reiterated that Alcoa’s cash-and-shares bid worth about A$10 per share has been resisted since it was tabled in May.

“Accordingly, Alcoa will turn its attention to other growth initiatives elsewhere in the world,” Belda said.

Alcoa’s initial offer of A$9.75 per WMC share, a premium of 19% over WMC’s average stock price for the year preceding the bid, was bumped up to A$10.20 in October, but WMC chairman Ian Burgess described the bid as “opportunistic” and “neither fair nor reasonable”, compared with an independent valuation in the range of A$11.18 to A$12.91 per share.

Rejecting the bid, WMC, threw a curveball on Nov. 21, announcing plans to “demerge” its 40% stake in Alcoa World Alumina & Metals (AWAC) from its Olympic Dam, nickel and fertilizer divisions and form two separately listed companies, which initially will be owned by existing shareholders. WMC believes the move will offer shareholders better value.

Relations between the two companies, which stretch back some forty years, seem to be straining. In his letter, Belda says, “If WMC’s current demerger proposal achieves the superior market value for WMC shareholders you foresee, we would commend you.” Belda also notes that despite WMC’s characterization of the Alcoa bid a “opportunistic'”, WMC still invited the company to Australia to make a presentation to its board in early October.

A day after WMC’s official rejection of the Alcoa bid, Hugh Morgan resigned from Alcoa’s board of directors.

In mid-afternoon trade on the New York Stock Exchange on Nov. 29, WMC shares were off US35 to US$19.40; Alcoa’s shares were 11 lower at US$37.82.

In other news, Alcoa and the Aluminium Corp. of China (Chalco) have announced plans to invest US$540 million over the next five years in a 50-50 Chinese joint venture.

Chalco, the world’s third-largest alumina refiner, also plans to raise between US$380-480 million via an early-December initial public offering of 2.6 billion shares split between Hong Kong and New York in early December. Alcoa will grab an 8% stake in the company and appoint one board member.

Under the joint venture agreement, Alcoa will purchase a half-interest in Chalco’s Pingguo refining and smelting facility in China’s southern Guangxi region. The two plan on expanding the plant.

Chalco, formed from China’s seven biggest aluminum producers, is the world’s number three alumina refiner and China’s largest aluminium producer.

Shares will begin trading in New York on Dec.11 and a day later in Hong Kong.

In still other news, Alcoa on Wednesday launched a US$1.5-billion, two-tranche debt offering. The first issue is for US$500 million of three-year floating rate notes launched at 28 basis points over LIBOR, and US$1 billion of 10-year fixed-rate notes due Jan. 15, 2002 launched at 112 basis points over U.S. Treasuries.