WMC splits on Alcoa offer

Australian miner WMC (WMC-N) has rejected a US$5.9-billion takeover bid from Pittsburgh-based aluminum giant Alcoa (AA-N), and instead announced plans to split off its alumina interests.

WMC said in a prepared statement that Alcoa’s proposed A$10.20-per-share offer was too low, and that it was, “opportunistic and did not reflect the true value of the WMC assets.”

Alcoa’s bid was conditional on the support of WMC’s board.

The company cites an independent valuation by Grant Samuel and Associates that puts the value of the company in the range of A$11.18 to A$12.91 per share. JP Morgan valued WMC’s 40% interest in Alcoa World Alumina and Chemicals (AWAC) at A$7.3 to A$7.8 billion.

WMC says that splitting the company into two listed companies, WMC Alumina and WMC Minerals, would increase competition in the event of a bidding war. WMC Alumina will hold WMC’s 40% AWAC stake and WMC Minerals will hold all other WMC assets, principally its Olympic Dam copper-uranium mine, and nickel and fertilizer operations. The company’s debt would be concentrated in the non-alumina business.

Pending a shareholder vote likely in March, WMC expects the “demerger” to be completed in the second quarter of 2002.

The AWAC agreement contains provisions that the venture be the exclusive vehicle for the owners’ alumina, bauxite and industrial chemicals businesses, something WMC says has hindered possible transactions in the past. WMC hopes that splitting the asset off will help prospects for a competitive counter-bid.

Alcoa operates and has a 60% stake in the AWAC joint venture in Western Australia, and had also opened its books to other parties. AWAC supplies 27% of world alumina demand. Alumina is the main ingredient in the manufacture of aluminum metal. The AWAC operation is the most profitable business for both companies.

Many market watchers believe that had Alcoa’s bid succeeded, it would spin off all of WMC’s assets except for the AWAC interest. The usual suspects were considered possible buyers — Rio Tinto (RTP-N), BHP Billiton (BHP-N) and Anglo American (AAUK-Q).

WMC shares were off US$1.87 or more than 9% to US$18.64 in afternoon trade on the New York Stock Exchange on Wednesday. After gaining more than US$1 on the news earlier in the day, Alcoa was up just 8 at US$37.92 by mid-afternoon.