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Alcan Wants a White Knight

Shares rise on reports the Alcoa bid may drive it into BHP's arms.

Updated from 7:08 a.m. EDT


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rose nearly 4% early Wednesday on reports the Canadian aluminum giant is looking for a white knight to rescue it from the hostile clutches of


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On Tuesday, Alcan's board unanimously rejected the Pittsburgh-based company's $27 billion cash and stock offer, saying it undervalued the company. On Wednesday, Toronto's

Globe and Mail

reported that Alcan was seeking a deal with Australian mining giant


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Alcan shares, which surged 30% earlier this month on news of the Alcoa bid, tacked on $2.84 to $83.87. Alcoa, which is under pressure from activist shareholders at Jana Partners to drop the Alcan bid and sell itself, rose 3.4% to $40.29.

"Alcan's Board of Directors has thoroughly evaluated Alcoa's offer and concluded that it fails to meet the best interests of Alcan shareholders," Yves Fortier, Alcan's chairman, said in a statement Tuesday.

"It does not adequately reflect the value of Alcan's extremely attractive assets, strategic capabilities and growth prospects, does not offer an appropriate premium for control of Alcan, and is highly conditional and uncertain," he continued.

Soleil Securities said in a research report that it believes either Alcoa will increase its offer, or another company such as BHP,

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could counter the proposal that's outstanding.

Friedman Billings Ramsey agrees that there's a strong possibility that either Alcoa will go higher or a rival bid will emerge. FBR added in its own research note that the eventual buyout price for Alcan could be as much as $87 a share.

When Alcoa went public with its offer May 7, it said it would pay $58.60 in cash and 0.4108 shares for each share of Alcan. At the time, that valued Alcan around $73.25 a share. Because of a slight increase in Alcoa's stock price since, the deal would be worth $74.60.

"We continue to believe our offer is full, fair and provides an attractive value to Alcan shareholders," says Kevin Lowery, a spokesman for Alcoa in Pittsburgh. "We will respond more fully after we have had an opportunity to evaluate the response further."

Alcan insisted that it has a clear strategic plan and said it and Alcoa "have fundamentally different approaches and track records in creating shareholder value."

The company also said its directors, a strategic committee of the board and its management will keep exploring alternatives that could benefit investors. Fortier's remarks said that considering the "rapidly evolving industry environment, we are continuously evaluating all options."

Such a rejection by the target of a hostile takeover proposal is seen by some as par for the course.

"Whenever there is a hostile bid I can't remember any circumstance where the target company didn't say no," says Charles Bradford, analyst at Soleil Securities in New York. He says the next steps will likely involve a cry to the provincial government in Montreal in addition to asking for more money.

Although the merger proposal does involve a plan for dual headquarters in Quebec and New York, some think it might not be enough to placate the provincial government.

"I think

Alcoa management has to do a better job of keeping head office employment within Quebec," says Frank Holmes, chief investment officer at U.S. Global Investors in San Antonio. "Over the years Montreal has lost many major corporations to Toronto and the government wants to keep the intellectual capital local."

Though Alcoa had pursued the deal for two years, Alcan said no proposals have ever been compelling.