Alcoa vulnerable to takeover after Alcan-Rio

By Caroline Humer - Analysis

NEW YORK (Reuters) - U.S. aluminum maker Alcoa Inc. (AA.N) is now itself vulnerable to takeover after Canadian rival Alcan Inc. AL.TO AL.N rebuffed its $29 billion hostile bid in favor of a deal with Rio Tinto (RIO.AX)(RIO.L).

Alcoa shares reacted by hitting a new high along with those of Alcan, which announced the $38 billion deal with the Anglo-Australian mining company on Thursday.

Another Anglo-Australian miner, BHP Billiton (BHP.AX) (BLT.L), is one possible buyer for Alcoa, analysts and sources familiar with the matter said, and other names in the frame include CVRD (VALE5.SA) RIO.N and Xstrata Plc (XTA.L).

Sources said BHP would only be interested in Alcoa's mining activities, not its packaging and downstream metal production businesses. Alcoa and BHP declined comment on the speculation.

Hours after the Alcan-Rio announcement, Alcoa said it was withdrawing its offer for Alcan, which was a subsidiary before Alcoa divested its foreign holdings in the early 20th century.

"It puts Alcoa strategy in question (and) makes them vulnerable to a BHP Billiton offer," Charles Stanley analyst Tom Gidley-Kitchin said of the Rio deal.

Alcoa's other possible move is looking for another acquisition that would fend off an unwanted suitor.

But one arbitrage trader said without Alcan, Alcoa was left hanging in the wind. "I don't know that Alcoa has any other options," he said, pointing out there were few aluminum makers left to buy given the consolidation of the metals industry.

Alcoa's withdrawn bid for Alcan, at $77.09 per share in cash and stock, was about $24 a share below Rio's.

"At this price level, we have more attractive options for delivering additional value to shareholders." Alcoa Chief Executive Officer Alain Belda said in a statement.

He said this could come from strong results, growth investments, trimming underperforming businesses and resuming a share buyback program suspended while the Alcan offer was open.

In January, its board authorized the repurchase of up to 10 percent of the outstanding stock, or about 87 million shares.

BID SPECULATION

Analysts said Rio's deal put Alcoa in focus for BHP, prompting Alcoa stock to leap and moves in the options market.

Alcoa shares hit a record high and closed on Thursday at $45.29, up 6.7 percent, on the New York Stock Exchange.