M&A: Aluminum Giant In the Making
By Ann Sosnowski
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In this article
Alcoa launches a $27 billion cross-border acquisition bid for aluminum producer Alcan.
Rising demand for metals has spawned 473 deals or bids in the metals industry.
Global merger and acquisition activity is meant to surpass $2 trillion this year, more than during the dotcom boom.
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Inorganic growth is adding value to the financial markets.
There’s another horizontal acquisition bid in the aluminum industry that’s already being touted as anti-trust.
Alcoa Inc. (AA:NYSE), one of the top 30 Dow companies, has made an unsolicited bid of $27 billion for Canadian aluminum company Alcan Inc. (AL:NYSE) of Canada.
Alcoa is bidding $58.60 per share on Alcan’s shares, less than the $60 per share that AL was trading for on Friday before the big news propelled it to an open of $80 per share!
This deal will make a much stronger and focused aluminum producer entity when all is said and done, if the deal is approved and passes any regulatory hurdles. The resulting Alcoa/Alcan entity will have twice the aluminum capacity of OAO Russian Aluminum.
Since a merger between both companies over the course of the last few years didn’t come to fruition, Alcoa, that had revenue of $31.18 billion in 2006 (enough to cover the price its putting on Alcan) and $7.76 billion in debt, decided to go the hostile takeover route.
Of course, this is not only a hostile takeover, but an example of cross-border merger and acquisition activity, and considered an “inward” transaction on the part of Canada. (Outward transactions are when Canadian companies acquire foreign companies.)
The norm in the nineties was American companies acquiring Canadian energy companies. Now, we have raw materials and metals taking the forefront.
M&A: Metals Demand Breads Merger and Acquisition Activity
With nickel, copper, rare earth metals prices, you name it, being driven up by Chinese demand, aluminum, which I wrote about a few months ago, is the next hot commodity. According to Bloomberg, rising demand for metals has spawned 473 deals or bids in the metals industry.
What’s most interesting about this aluminum M&A deal is not only that it comes on the heels of two years of failed merger talks between both companies, but that this is a welcome solution to two companies that have been losing market share to Russia and China as aluminum prices have doubled in the last four years.
China and Russia control almost 35% of the global aluminum market and 40% of production capacity. China’s market share in the aluminum industry has jumped 22% from 7% in the last eight years.
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In fact, Diligent Investor subscribers have been holding a Chinese aluminum producer for the past month, courtesy of their May 2007 issue. I made the case, as I did here in Market Report, that aluminum was undervalued and offered fantastic opportunity for investors.
Today, on the merger and acquisition news of Alcoa and Alcan, Diligent Investors’ Chinese aluminum producer is up $1.15 per share and the whole aluminum industry is up 14.37%.
This is what merger and acquisition activity does to the market… no wonder the major market averages are still consistently hitting new highs!
M&A: Pushing the Market to New Highs
Merger and acquisition activity, not just in the metals industry, but across the board, is going to mark a banner year. Global merger and acquisition activity is meant to surpass $2 trillion this year, more than during the dotcom boom.
This is also the case with companies going public.
Now recently, I told you all about my Secret IPO Registry, and how to get in on the biggest boom since 2000.
Along with the IPO boom, I’m extremely bullish on the merger and acquisition industry as well, since both phenomena are driving the market to new highs. I’m about to unleash four stocks that I believe could extremely benefit from the merger and acquisition boom.
Two of these stocks I’ve researched are experts at inorganic growth and acquiring companies in their sectors.
Another stock is a company poised to be bought by a biotech giant. The biotech industry is purported to be one of the strongest in this M&A boom.
And the third company is a banker, one of the big guys that make the merger and acquisition deals happen.
I haven’t released these Special Reports on merger and acquisitions quite yet, but Diligent Investor subscribers get first dibs on them as soon as I do… which is going to be fairly soon.
You can very easily sign up for Diligent Investor today, for the annual rate of $49, which includes 12 consecutive months of jam-packed financial research (and follow-on profits!). That way, you’ll be the first to know about these blockbuster merger and acquisition companies.
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Ann Sosnowski is a small and mid-cap stock analyst for Taipan Financial News. She is the editor of Diligent Investor, a monthly newsletter that balances conservative and moderately risky investments that pertain to current market trends. She is also the editor of Diligent Investor Micro-Cap Hot Sheet, a monthly newsletter that finds the hottest penny and micro-cap stocks on the market.
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