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Wed, Oct 11, 2006 - Page 10 News List

Rusal merger to create the biggest aluminum maker


Two Russian firms and a Swiss commodity trader announced a merger on Monday that would form the world's largest aluminum maker, overtaking Alcoa of the US and creating a Russian giant to take its place.

Under the deal, Rusal, now Russia's largest aluminum firm, would merge with its smaller local rival, Sual, and mining assets belonging to the Swiss company, Glencore, to create a company with an estimated value of US$25 billion to US$30 billion, controlled by the Russian oligarch who is the owner of Rusal, Oleg Deripaska, the country's sixth-richest man.

The deal continues a pattern in Russia of uniting companies separated in the breakup of the Soviet Union and the subsequent privatization in the 1990s into large, new monopolies, a crucial part of the economic policy of Russian President Vladimir Putin.

Analysts say the mergers have been driven by national pride and partly by efficiencies that can be created by large companies.

"It's a very important deal for the image of Russia. It creates a global leader, No.1. This is good for Russia," Aleksandr Bulygin, the chief executive of Rusal who will have the same post in the merged company, said in a telephone interview.

Like Gazprom or the government-owned oil company Rosneft, the new merged aluminum company intends to list shares on Western stock exchanges, leveraging its size and high commodity prices to get access to international capital.

Sual is majority-owned by the Viktor Vekselberg, Russia's fourth-richest man. Glencore was founded by Marc Rich, the US commodities trader who fled the US to avoid facing charges of tax evasion, racketeering and fraud and was pardoned by then president Bill Clinton in January 2001. Glencore is now owned by its employees.

The new company intends to place shares on the London Stock Exchange in 18 months, executives said on Monday. Rusal would own 66 percent, Sual 22 percent and Glencore 12 percent. The annual revenue would be US$10 billion, Bulygin said.

The combined company, also to be known as Rusal, will produce about 4 million tonnes a year of the lightweight metal used in cans, foil and automotive parts, compared with the 3.5 million tonnes made by Alcoa last year.

The deal, which company executives said should be closed by April 1 next year, would need regulatory clearance in Russia, the EU and possibly the US, along with Jamaica, Ireland and other countries where bauxite mines are located, Bulygin said.

Alcoa, based in Pittsburgh, is a century-old company and a storied name in US business. Alcoa's competitive edge has been dulled because electricity, a major factor in the production of aluminum, is a high-priced commodity.

Rusal has a distinct advantage: Its plants are supplied with some of the world's cheapest electricity, produced by hydropower dams on Siberian rivers. That power is cheap because it is "shut in," or too far from any large city to economically be sold to residential consumers at higher prices.

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