Alumina producer Alcoa Corp. has entered exclusive takeover talks with Australian joint-venture partner Alumina Ltd., after making a $2.2 billion offer.
Alcoa has proposed a deal offering 0.02854 of its shares for each of Alumina’s, the company said Monday, marking a 13.1% premium to its share price on Feb. 23. The Australian company’s board said it plans to support the offer if the sides get to a definitive agreement following further discussions. Alcoa also agreed to buy a 19.9% stake in Alumina from biggest shareholder Allan Gray Australia.
Alumina owns about 40% of of Alcoa World Alumina & Chemicals, the world’s largest producer of the metal, through a joint venture with Alcoa. If approved, the takeover will increase its exposure to “tier-1” bauxite and alumina businesses and boost its global position as a pure-play upstream aluminum producer, the American company said in a separate statement.
“We recognize the value creation opportunities possible under a simplified ownership structure, including the ability to implement AWAC’s operational and strategic decisions on an accelerated basis,” Alcoa chief executive officer William F. Oplinger said. “We believe now is the right time to consolidate ownership in AWAC.”
Alumina’s shares rose as much as 9.3% in early trading in Sydney on Monday, and were up 6.4% to A$1.085 at 10:15 a.m. local time.
Alcoa’s takeover offer comes about five months after the US aluminum producer appointed Oplinger amid struggles with operational and permitting setbacks in Australia for its bauxite mining business. Those problems forced Alcoa to warn investors that it now plans to mine lower-grades of the bauxite, a key raw material needed to make aluminum, in Western Australia until it gets to its next mining phase, which could be around 2027.
The company recently halted production at its Kwinana alumina plant in the region as part of cost-cutting measures Oplinger is implementing. That plant was the first of the company’s three Western Australia alumina refineries that have been operating for around 60 years.
AWAC has an international network of alumina refineries in Australia, Brazil, and Spain, and is responsible for almost 10% of world alumina production, according to Alumina’s website. Around 90% of this alumina goes to feed smelters that produce the aluminum used in transport, aerospace, building, construction and packaging, it said.
Alumina has hired Flagstaff Partners and BofA Securities to act as financial advisers and King & Wood Mallesons as legal adviser it said. JPMorgan Securities LLC and UBS Investment Bank are acting as financial advisers to Alcoa, and Ashurst and Davis Polk & Wardwell LLP are acting as its legal counsel, the company said.
