SAN FRANCISCO (MarketWatch) -- Rio Tinto said Thursday it reached an agreement to buy Canadian aluminum producer Alcan Inc. for $38.1 billion in cash, topping a hostile offer from Alcoa Inc. by roughly a third.
Alcoa, in a brief statement shortly after the closing bell, dropped its bid for Alcan rather than open a bidding war with Rio Tinto. Read full story.
Flush with cash because of a booming global appetite for the metals it extracts, Rio Tinto's making the deal to give itself strong positions in three metals -- iron ore, copper and aluminum -- to meet demand from China's rapidly growing economy, said CEO Tom Albanese.
Rio Tinto /zigman2/quotes/208934945/delayed UK:RIO -0.67% /zigman2/quotes/200083756/delayed AU:RIO -0.84% /zigman2/quotes/222358280/composite RTP +0.37% offered $101 a share -- entirely in cash -- for each share of Alcan /zigman2/quotes/201894804/composite AL -2.96% /zigman2/quotes/202815225/delayed CA:AL 0.00% , which it says is a 65.5% premium to Alcan's all-time high prior to the Alcoa offer. It's also a premium of 32.8% to Alcoa's cash-and-stock offer, based on Alcoa's July 11 closing price, valued at $76.03 for each Alcan share. What's next for Alcoa.
The board of Alcan, which wouldn't even let Alcoa /zigman2/quotes/200686102/composite AA -2.16% look at its books, unanimously backed the offer from the Anglo-Australian mining giant. Rio Tinto said it hopes to close the deal in the fourth quarter.
With the acquisition, London-based Rio Tinto will become the world's largest aluminum producer, the fourth-largest producer of alumina and the biggest producer of bauxite.
Aluminum last year made up only 10% of Rio Tinto's profits, a share that would rise to 25% just counting raw aluminum and alumina operations.
U.S.-listed shares of Alcan rose nearly 10% to close at $98.45 after hitting a new all-time of $99.97.
Meanwhile, Rio Tinto's shares slipped 2% to finish at $317.71 in New York. And Alcoa shares, part of the Dow Jones Industrial Average, advanced 6.7% to $45.29.
The deal culminates an intense push by Alcan's board and management to find another suitor after New York-based Alcoa on May 7 launched its hostile offer, later rejected by Alcan as too low and too uncertain given both aluminum companies' overlaps.
Alcan Chairman Yves Fortier had previously met with his counterpart at Rio Tinto but had politely turned down the mining's executives overtures, he told reporters. But after May 7, Alcan's board started talking again to companies and signed confidentiality agreements with "a number," said executives.
Alcan's board agreed to the Rio Tinto deal late Wednesday afternoon.
The decision to relinquish its independence "was forced on us by the hostile offer by Alcoa," said Fortier. "That was not a journey we had on our platform prior to the 7th of May."
Despite the board's backing, many analysts had been looking for a counter-offer from Alcoa. Those hopes were dashed by Alcoa's decision to quit the race.