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BHP Billiton mum on reports of Alcoa offer

The world's biggest miner, BHP Billiton, was tightlipped yesterday on reports that it is considering making a US$50 billion takeover bid for US aluminum giant Alcoa Inc.

The move would top Rio Tinto's US$38.1 billion offer for Canadian aluminum group Alcan Inc announced last week and analysts rated it a possibility.

Alcoa's decision to drop its US$28 billion offer for Alcan when Rio Tinto stepped in as a "white knight" last Thursday meant that the US company was now itself a potential target, they said.

A Melbourne-based spokeswoman for BHP Billiton said it was her group's policy not to comment on merger and acquisition speculation.

She also declined to comment on reports that BHP Billiton had briefed Merrill Lynch on its interest in pursuing Alcoa.

ABN Amro resources analyst Warren Edney said the global alumina and aluminum sector's ownership was clearly in play as the world's largest miners seek to utilize strong cash flow resulting from high commodity prices to fund future growth.

"[Alcoa] may be a better [acquisition] than Alcan because of its alumina refining capacity," Edney said.

A BHP Billiton bid for Alcoa could involve private equity players as there were downstream aluminum components of Alcoa that it would not want, such as Alcoa's aluminum sidings business, he said.

"Any combination is possible and you can't rule out CVRD being involved," Edney said, referring to the Brazilian mining giant Companhia Vale do Rio Doce, another potential acquirer of the aluminum company.

Only time would tell whether BHP Billiton would make a bid for Alcoa and also possibly seek to acquire Australian-listed Alumina Ltd, said Peter O'Connor, a resources analyst at Credit Suisse.

Alumina is Alcoa's 40 percent partner in the Alcoa World Alumina & Chemical joint venture.

It operates some of the world's lowest cost alumina refineries, including refineries in Western Australia.

O'Connor said that a full cash offer of approximately US$50 a share for Alcoa would increase BHP Billiton's gearing to 63 percent from just 18 percent a year ago.

But, he said, asset sales and strong cash flow of about US$12 billion a year could reduce BHP Billiton's gearing to 41 percent by 2009.

This, O'Connor said, would make an offer financially possible.
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