BHP considers bid for Alcoa

BHP Billiton, the UK-listed miner, has asked Merrill Lynch and JPMorgan to weigh up the merits of it making a bid for Alcoa, the US aluminium group, following rival Rio Tinto’s $38bn offer for Alcan of Canada.

Rio’s offer is the largest takeover bid seen in the mining sector and is expected to trigger a wave of merger and acquisition activity as rival mining companies try to bulk up and avoid being taken over themselves.

BHP had been interested in making a bid for Alcan but Rio Tinto’s friendly all-cash offer for the aluminium group, worth $44bn when debt is included, is above what BHP would consider paying.

Attention is now shifting to Alcoa, which made a failed $27.5bn hostile bid for Alcan in May and is expected to become a takeover target itself.

It is understood that BHP, the world’s largest mining company, has asked Merrill Lynch and JPMorgan to examine whether a bid for Alcoa makes sense. The two banks are already BHP’s brokers.

Analysts say Alcoa is a less attractive target for BHP than Alcan as its aluminium smelters are less efficient and it has lots of downstream assets, such as packaging divisions, that BHP is not interested in.

But Alcoa does have a strong position in the mining and refining of aluminium’s raw materials, bauxite and alumina, which would appeal to BHP.

BHP’s senior executives are thought to be divided about whether to bid for Alcoa. One person close to the company said that Chip Goodyear, BHP’s outgoing chief executive, would not support a bid unless the deal was a friendly one.

The main issue, therefore, is whether BHP would be willing to make an offer generous enough to win a recommendation from Alcoa’s board.

This could depend in part on how much BHP thinks it could raise from spinning off Alcoa’s packaging assets.
Source : http://www.ft.com