Updated from 7:59 a.m. EDT
, the second-largest aluminum company in the world, said Thursday it will acquire
Alusuisse Lonza Group
, for $4.6 billion in cash and shares.
Alcan sweetened its offer by hiking its bid by about 6% and adding a cash component.
Under the terms of the agreement, Alcan will pay 17.1 of its shares for every Algroup share. The transaction will also include the capital repayment of 90 Swiss francs and a special dividend payment of 135 Swiss francs -- effectively 225 Swiss francs in cash -- for every Algroup share. In the original all-stock offer, Alcan offered 20.1745 shares for each Algroup share.
The deal went through only after Martin Ebner's
, a major Algroup shareholder, came out in support of the new deal.
Thursday's announcement comes two months after Paris-based
dropped out of a three-way $10.6 billion deal with Alcan and Algroup, after restructuring attempts by the companies failed to appease European regulators.
"The three-way combination was a dream team," said Lawrence Smith, an analyst at
. "By comparison, clearly this deal suffers, but it's a reasonably smart combination. Out of all the possible acquisition candidates, this is pretty close to the top of the list." Smith rates Alcan a buy, and his firm has done no underwriting for the company.
"Algroup's business is a good strategic fit for Alcan," said Victor Lazarovici, an analyst at
BMO Nesbitt Burns
. Algroup's attractive alumina and bauxite assets will lower Alcan's raw material costs. Also, Algroup's flexible-packaging operation, which is a faster-growing and higher-margin business, will accelerate Alcan's growth beyond the aluminum business.
Additionally, Algroup's position as the leading producer of automotive sheet in Europe will aid Alcan as it targets the business of producing aluminum content for cars. Algroup's technology is used in the Audi A8 model of cars. Algroup also possesses the technology to produce the aluminum space frame for a car's undercarriage.
However, a three-way deal with Pechiney would also have given Alcan greater strength on both the production and technology side. Smith pointed out that most modern aluminum smelters around the world use Pechiney technology.
Pechiney has hinted it would like to make a counterbid for Algroup, but Lazarovici thinks it's unlikely. "Pechiney can't compete with Alcan's offer. I don't think Alcan's left them much," he said. "It can't offer the shares and doesn't have the cash. There would also be a regulatory delay." At Wednesday's regular trading close, Pechiney shares had fallen 10% since the three-way deal collapsed on April 13.
Lazarovici rates Alcan a strong buy and his firm has done no recent underwriting for the company.
Alcan and Algroup expect to save $150 million in costs with the merger, about 75% less than the $600 million projected for an Alcan/Algroup/Pechiney union. Lazarovici sees the $150 million projected savings in costs as an "easily attainable number, just the tip of the iceberg" that could grow to as much as $700 million after two years. Pro forma 1999 revenues for the two companies total $12.4 billion.
Montreal-based Alcan will continue to rank a distant second to Pittsburgh-based aluminum giant
even with the acquisition.
Shares of Alcan fell 2%, or 1/2, to 32 7/16 in Thursday midday trading, giving back some of its 3% Wednesday gain. (Alcan finished Thursday regular trading down 15/16, or 3%, at 32.) Lazarovici said one factor in the stock's drop could be soft metal prices, which have also affected Alcoa. Alcoa was also down 1%, or 3/8, to 58 1/16 in midday trading. (Alcoa closed Thursday regular trading down 1 1/8, or 2%, at 57 5/16.)