KEY POINTS:
Rio Tinto group chief executive Thomas Albanese says he's buying Alcan before the competition beats him to it.
"You ask the question of why now?" Albanese told investors during a conference in Montreal. "This is competitive. There aren't that many top-quality, global resources in any of the mining
sectors that are available."
Albanese is making the industry's biggest acquisition just two months after taking over at the world's third-largest mining company. The US$38.1 billion ($48.5 billion) cash offer from London-based Rio Tinto overwhelmed a hostile bid for Alcan by Alcoa and would create the world's largest aluminium producer.
The 49-year-old chief executive joins a rush by metals producers to acquire mines and new businesses. Brazil's Cia Vale do Rio Doce and Switzerland's Xstrata each gained market share and grew faster than Rio by paying more than US$35 billion for takeovers last year.
Albanese's predecessor, Leigh Clifford, announced US$3 billion of purchases in seven years.
"Rio has been falling behind the other big mining groups," said Ian Henderson, of JPMorgan Asset Management in London.
"Albanese may have wanted to quickly make his mark, but it's a very big bite for Rio."
Buying Alcan will quadruple Rio's aluminium output and enable it to leapfrog Russia's United Co Rusal as the world's biggest producer of the metal.
Montreal-based Alcan employs 68,000 people in 61 countries and had revenue last year of US$23.6 billion.
The takeover will increase Rio Tinto's debt, prompting credit-default swaps on the company to soar.
Rio Tinto will borrow up to US$40 billion to finance the all-cash offer. The deal follows a five-year rally in metals that sparked US$106 billion of proposed takeovers in the metals and mining industry this year. That compares with US$183 billion in 2006.
The surge in commodity prices has pushed up the values of companies such as Alcan, which 2 1/2 years ago was entertaining offers at a fraction of today's price.
Alcan's board in October 2005 considered an offer from Alcoa that would have been US$44 a share in cash and stock, according to Securities and Exchange Commission filings.
"The combination of the two pipelines of projects between Rio Tinto and Alcan will be undeniably the best pipeline of lowest-cost, highest-quality projects in the aluminium sector," Albanese said.
Alcoa, the world's second-largest aluminium company, has withdrawn its hostile US$27.7 billion bid. But Albanese still may face a competing bid, analysts say.
"Clearly, we are looking for more, but this is a very serious offer from Rio Tinto," said Benoit Brillon, at Natcan Investment Management in Montreal.
"There's a chance we will see other bids and a higher price can be justified. BHP would probably have the same level of synergies as Rio Tinto."
BHP Billiton, the world's largest mining company, may be interested in buying all or part of Alcan, the Financial Times reported on July 10. Melbourne-based BHP has declined to comment on speculation it may be a bidder for Alcan or Alcoa.
Rio de Janeiro-based Vale, the world's biggest iron-ore producer, said it hadn't ruled out a possible bid for Alcan, though no talks were planned. Chief financial officer Fabio Barbosa said yesterday that the company was "always analysing opportunities to reinforce its strategic position".
Albanese, the first American to run Rio Tinto, joined the company in 1993 when it bought Nerco.
As Nerco's chief operating officer, he was one of three employees out of 200 in Nerco's head office offered a position at Rio Tinto. The catch was that he had to travel to work at a mine called Greens Creek on Admiralty Island in Alaska.
Albanese got a bachelors degree in mineral economics and a masters in mining engineering from the University of Alaska. Among his first jobs was hiking through Alaska to stake mining claims.
Rio Tinto called Albanese back to its headquarters in London and three years later he was transferred to oversee copper mines outside Salt Lake City, Utah. He was sent in 2000 to become managing director of Australian operations before returning to London to head Rio Tinto's industrial metals group.
He became chief executive of copper and exploration in 2004 and joined the board in 2006. In May, he succeeded Clifford, 59, who'd spent 37 years at the company.
- Bloomberg
The Bid
* English/Australian mining giant Rio Tinto is offering US$38.1 billion for Canadian aluminium producer Alcan. The deal would create the world's largest aluminium producer.
* The bid trumps a US$27.7 billion hostile bid from US group Alcoa, which has now been withdrawn.
* Any rival bid would have to top US$40 billion to succeed, experts say.
