Anglo-Australian mining giant Rio Tinto has tabled an all-cash offer for Montreal-based Alcan Inc. valued at US$ 38.1-billion. The friendly takeover deal will create the world's biggest aluminum producer. Alcan's board of directors has unanimously recommended that shareholders accept Rio Tinto's all-cash offer of US$ 101 per share. The offer represents a premium of 32% over the current share value of US$ 76.03. The offer is also at a premium of 65% on price on Alcoa's takeover bid on May 4.

Alcan's board unanimously recommended Rio Tinto's all-cash offer of US $ 101 per share. But the offer is subject to conditions: 66.67% shareholders support, break fee of US $ 1.05 billion. Alcoa had withdrawn offer for Alcan after Rio Tinto- Alcan agreement on deal of US $ 101/sh. The offer is one-third more than Alcoa was bidding, at US$ 28 billion (€20.4 billion) for Alcan

Funding

The ratings on Rio Tinto has been put on watch negative. The funding for the offer will be wholly debt. They see consolidated net leverage rise to around 2.8x, despite low net leverage of 0.3x as at FYE06. The leverage at this level is high for the current rating. Also the timing of the transaction is at the top of the current commodity price cycle.

New Organisation

The new company will be called Rio Tinto Alcan, headed by Dick Evans-president and CEO of Alcan. The aim will be to enable new company to capitalise on Skyrocketing demand for metals in China and India. Rio Tinto Alcan would be largest global producer of aluminium and bauxite. Combined company will be a powerful hold over key materials in aluminum production. The transaction is expected to create a new global aluminium industry leader in bauxite, alumina, power, aluminium and technology.

They will have a strong pipeline of attractive growth projects for the future and add to that Rio's presence in Quebec and Canada operations. Rio Tinto expects acquisition to be earnings and cash flow per share accretive to Rio Tinto in first full year of consolidation. Overall anticipated post tax synergies from the transaction are expected to be around $ 600 million per year.

Synergies

Rio Tinto already has a major bauxite operation in Australia, as does Alcan. Rio Tinto is world's eighth-largest aluminum maker and second-biggest iron ore producer. Alcan is a leading supplier of bauxite, alumina and aluminum. Alcan acquisition will diversify earnings away from iron ore and copper. Alcan has a high quality upstream asset portfolio with a sustainable low cost position through its excellent access to long life hydro power.