Potential takeover bids of Alcoa Inc by one of two Australian-based companies reportedly considering such a move were unlikely because of the US aluminum producer's company dynamics, cost factors and increasing Chinese competition, analysts said yesterday.
BHP Billiton Ltd, the world's largest mining company, and Rio Tinto PLC, the world's second-largest iron ore producer, declined to comment on the takeover talk, sparked on Tuesday by an unsourced report in the Times newspaper in London.
The report said the Melbourne-based mining companies were considering offers of up to US$40 billion for the US aluminum giant. Alcoa shares rose 6.38 percent to close at US$35 on Tuesday on the New York Stock Exchange after rising as high as US$36.05 earlier in the session.
"We don't comment on market rumors and speculation," said Ian Head, a spokesman for Rio Tinto.
Analysts said they doubted a bid was pending, noting that BHP or Rio Tinto were focused more on the mining and raw materials end of the business than "downstream" industries like the manufacture of aerospace equipment and auto parts, which Alcoa emphasizes.
"I think the downstream assets make it all too hard to be honest -- I don't put any credence in these rumors," Morgan Stanley analyst Craig Campbell said.
BHP Billiton shares rose 0.8 percent to A$28.79 (US$22.44) in trading yesterday in Australia, while Rio Tinto gained 2.3 percent to A$77.20.
Stock Resource analyst Steve Bartrop said BHP's existing Australian aluminum assets could see the miner face antitrust issues if it made a bid for Alcoa, based in Pittsburgh, Pennsylvania.
Bartrop said there is little benefit for BHP in investing in Alcoa's US aluminum smelting operations when it has its own low cost operations in Mozambique, South Africa and Brazil.
"It doesn't make much sense to buy higher cost smelters in the US even with the proximity to market," he said.
Analysts at the UK-based independent investment banking and brokering group, Numis, said the miners may have considered Alcoa in the past, but that such a bid was now doubtful.
"We are not convinced the value case relative to other options [organic, buybacks or other mergers and acquisitions] will be easy to make and, on balance, believe it is unlikely," it said in a statement.
Global investment bank UBS said both miners have the cash and flexibility to launch a takeover, but that the "timing could be questionable," with China providing increasing competition in aluminum production.
Meanwhile, Australia's Alumina Ltd said yesterday that it was not aware of any information about a possible takeover of US-based partner Alcoa. Alumina owns 40 percent of the Alcoa World Alumina and Chemicals joint venture in which Alcoa holds the remaining controlling stake.
Alumina's shares shot up 5.9 percent on Tuesday on the takeover speculation, and rose another 1.52 percent yesterday to A$7.34.
"We are not aware of any information with respect to the recent press speculation concerning a possible takeover of Alcoa by either Rio Tinto or BHP Billiton and the possible implications for the company resulting from that takeover," Alumina said in response to a share price query from the Australian Stock Exchange.
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