U.S. aluminium producer Alcoa (AA.N) unfurled a £1.6 billion all-stock acquisition proposition for its Australian joint venture counterpart Alumina (AWC.AX) on Monday, aiming to bolster its upstream exposure and streamline operations.
Alumina’s singular asset comprises a 40% interest in the Alcoa World Alumina and Chemicals (AWAC) joint venture, primarily overseen by Alcoa.
AWAC boasts stakes in bauxite mining, alumina refining, and aluminium smelting across diverse territories including Australia, Brazil, Spain, Saudi Arabia, and Guinea.
Alcoa CEO William Oplinger conveyed to analysts that this deal would jettison Alumina’s annual overhead expenses of A$12 million (£7.87 million) and facilitate the merged entity in exploiting tax benefits associated with debt holdings.
Oplinger also emphasised that the extended global presence would furnish Alcoa with manifold growth prospects.
Per the proposed agreement, Alumina shareholders would be entitled to 0.02854 shares of Alcoa common stock per share held, affording them a 31% interest in the amalgamated entity.
This values each Alumina share at A$1.15, predicated on Alcoa’s concluding price from Friday.
Alumina shares culminated 7 Australian cents higher at A$1.09 on Monday, while Alcoa’s shares witnessed a 2.9% descent in U.S. premarket trading.
Melbourne-based Alumina disclosed that its board endorsed the proposition in the absence of a superior bid, albeit with a caveat regarding the binding nature of the proposal.
Notably, Alumina’s foremost shareholder, investment manager Allan Gray Australia, with a near 20% stake, confirmed its intent to vend its holdings to Alcoa.
Portfolio manager Simon Mahwhinny of Allan Gray articulated, “To a very large degree it simplifies the corporate structure,” appraising the deal’s implications.
Alumina originated from a 2002 de-merger of WMC Ltd’s alumina assets, and analysts have long deemed an Alcoa acquisition as a logical progression.
Additionally, AWAC holds a 55% interest in the Portland aluminium smelter in Australia, alongside China’s CITIC Resources (1205.HK) and Japan’s Marubeni (8002.T).
Jefferies analysts opined in a note on Alcoa, “We believe this transaction makes strategic sense, but the economic upside to Alcoa is offset by the premium paid,” reflecting on the offer’s merits amidst a challenging industry backdrop characterised by subdued alumina prices.
Alcoa’s announcement coincides with difficult times in the alumina sector, marked by low prices.
In January, Alcoa disclosed plans to halt production at AWAC’s loss-making Kwinana alumina refinery in Western Australia due to market vicissitudes and ageing infrastructure.