The success of Alcoa Inc's hostile US$27 billion takeover offer for rival Alcan Inc of Canada may rest as much with politicians as investors.
The announcement of the offer, which if successful, would restore Alcoa's status as the world's largest aluminum business, came on Monday after attempts by the two companies to negotiate a friendly merger over the last two years. The deal would probably draw intense antitrust scrutiny.
A larger issue in the short term is that the prospect of Alcan's coming under foreign control is politically sensitive in Canada, particularly in Alcan's home province, Quebec.
"Politics will be quite critical," said Karl Moore, an associate professor at the Faculty of Management at McGill University in Montreal. "Quebec politics may mean there is some poison in swallowing Alcan."
Shares of Alcan, which is based in Montreal, rose 34 percent on Monday, or C$23.02 (US$20.79), to C$90.57. Its shares that trade on the New York Stock Exchange soared US$21.08, to US$82.11.
At a news conference in a hotel down the street from Alcan's headquarters, Alcoa's chairman and chief executive, Alain Belda, said his company decided to proceed with a hostile offer to protect itself from Russian and Chinese rivals.
"Bigger is better in this business," Belda said. "As my father used to say: `You have to be bigger than the hole you can fall in.'"
Belda declined to say what led to the collapse of the earlier merger negotiations in November.
He estimated the pretax savings from combining the companies at US$1 billion a year.
In a brief statement, Alcan said its directors would review the offer.
Combined, the two firms would have about US$54 billion in sales and would have produced 7.8 million tonnes of aluminum last year.
In March, the Russian aluminum producers United Company Rusal and Russian Aluminum joined to become the world's largest aluminum producer.
In recent interviews, Alcan's president and chief executive, Richard Evans, dismissed the need for his company to grow larger through a merger.
He also warned that any hostile takeover of Alcan might endanger the company's agreements with Quebec, which provides it discount rates for electricity, a major cost of producing aluminum.
The specific terms of those arrangements are confidential, making it difficult to judge their potential impact. Howver, the government has indicated it would require Alcan to maintain its headquarters in Montreal.
Sensitive to those concerns, Belda arrived in Quebec on Saturday to brief provincial politicians, including Quebec Premier Jean Charest.
Alcoa is promising that if it acquires Alcan, it will move some of its head office functions to Montreal and make the city the headquarters for its primary materials unit as well as its research and development operations.
The merger news comes at a difficult time for Charest.
A recent election left his government without a majority in Quebec's legislature where he faces two opposition parties with nationalist leanings.
Also, many in Quebec believe that even though the Molson Coors Brewing Co maintained headquarters in Denver and Montreal after a 2005 merger, that brewer is now run from the US.
Charest's government did not comment on Monday's announcement. The federal cabinet minister responsible for Montreal, Michael Fortier, however, stopped short of endorsing the deal, despite his Conservative Party's general inclination to leave businesses alone.
Fortier told reporters Alcoa pledged to maintain jobs in Canada before adding: "We'll, we'll have to see."
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