Alcan Refuses to Enter Formal Discussions With Alcoa

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The expected HSR second request for Alcan Inc.'s merger with Alcoa Inc. was issued Thursday, July 5. An Alcoa press release states the following:

Alcoa will continue cooperating with the DOJ's review, and will comply with the second request as soon as possible.

As discussed previously, if a formal merger agreement is reached between the two companies, the HSR review will be the key timing factor and will almost certain result in significant divestitures. The second request process can be expected to last at least four months, even without a formal agreement, and will very likely exceed a six month time frame.

More critical, however, is Alcan's refusal to enter formal discussions with Alcoa at this point, as it continues to perceive the current offer as inadequate. Alcan's very open refusal to negotiate has prompted Rio Tinto to apparently re-enter the scene as it has reported consulted bankers for guidance on a potential bid for Alcan.

Assuming the Rio Tinto reports are accurate, this should sent a very clear and definitive signal to Alcoa that it must increase its offer within the next few weeks if it truly intends to get Alcan to the bargaining table. It remains almost inconceivable that a company with the resources and savvy of Alcoa would expect its current course of action (or inaction) to ultimately result in acquiring Alcan. It is abundantly clear that this will not happen, even if the offer is taken directly to Alcan shareholders.

It will be stated again that Alcoa would be seriously remiss to let this potential combination slip away. There is absolutely no advantage to withholding an increased offer, and on that will give Alcan no choice but to seriously consider accepting. Adding another $2.00 (+/-) to the cash component of the terms would very likely make the difference in this situation.

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