BHP-Rio deal could put some Alcan assets in play

By Cameron French - Analysis

TORONTO (Reuters) - BHP Billiton's (BHP.AX) formal bid for fellow mining giant Rio Tinto (RIO.AX) could end up putting some Alcan assets back on the market, but analysts doubt BHP or Rio would want to part with all the remnants of the Canadian aluminum producer.

BHP made a hostile all-stock $147 billion offer for Rio late on Wednesday, offering 3.4 of its own shares for each Rio share.

The offer comes just a few months after Rio sewed up its own $38 billion takeover of Alcan, a deal that trumped an earlier offer by U.S. aluminum producer Alcoa (AA.N).

While BHP has not signaled it would want to part with the aluminum assets, it did say in announcing the Rio bid that a related $30 billion share buyback would be partially financed by "asset disposals".

Also in the mix now is former Alcan suitor Alcoa, which along with state-run Aluminum Corp of China (Chinalco), bought a 9 percent stake in Rio last week, perhaps giving it a seat at the bargaining table, though likely not enough influence to block the deal.

Tony Robson, a mining analyst at BMO Capital Markets in Toronto, said an outright spinoff of the former Alcan assets is likely not in the cards, but some assets, in particular low-cost smelters in Quebec, could end up changing hands.

Alcoa's purchase of Rio shares suggests the U.S. aluminum producer is still eager to get its hands on the Quebec operations, which it has long coveted, he said.

"It's conceivable that some assets could pass into Alcoa hands,' he said.

"However, I would imagine that BHP Billiton would seek to retain the vast majority of Alcan assets because they are of good quality," he said.

MAMMOTH DEAL

If it goes through, the Rio takeover would be the second-largest ever, and would create a top player in several metals, including iron ore and aluminum, which could put it under pressure from regulators to divest some assets, analysts say.

Rio rejected the BHP offer on Wednesday, saying it did not reflect the value of the company.

"I'm sure Alcoa would be after some Alcan assets, but remember, both BHP and Rio Tinto are major players in the aluminum business," said one analyst who asked not to be named.

"I think it's more what leverage they can get through the deal and maybe they can get specific assets, but I don't think all of Alcan will come out."

Alcan's Quebec operations are particularly appealing because of deals for cheap power the company has with the provincial government, a cost-saver in an energy-intensive industry.