Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Alcoa Wants to Buy Reynolds

In the second consolidation shock to hit the aluminum industry in two days, Alcoa Inc., the world's largest producer, said Wednesday that it wanted to buy Reynolds Metals Co., a troubled competitor that is nonetheless the third largest player.

The announcement came a day after three huge Alcoa rivals - Alcan Aluminium of Canada, Pechiney of France and Alusuisse Lonza Group of Switzerland - announced they intended to merge, creating a $21.6 billion behemoth called Alcan that would displace Alcoa, which had $15.5 billion in sales last year. All three foreign companies had been rumored to be talking to Reynolds themselves.

Reynolds said its board would discuss the offer Sunday. But if Alcoa's proposal were accepted, the merged company's combined 1998 sales of $21.3 billion would put it back within breathing distance of the top spot. In fact, since the new Alcan derives $17.4 billion of its sales from aluminum, Alcoa would remain the biggest company in the business.

While this merger flurry is big news on Wall Street, where both Reynolds and Alcoa shares rose Wednesday, it is unlikely to have much impact on the consumers who buy Reynolds Wrap and other aluminum foils, or the automotive companies designing ever more aluminum into their cars.

Even if the mergers result in fewer aluminum producers, aluminum itself is a basic commodity that is in ample supply throughout the world.

"Neither of these mergers, assuming they go through, will have any impact on aluminum prices, or even on aluminum supply," said Leanne Baker, metals analyst at Salomon Smith Barney. Even the heaviest users of aluminum seem unworried. "Aluminum is a market-driven commodity, so you've got to presume that the market will drive the price to wherever it is going to go," said Ronald Iori, a spokesman for Ford Motor Co.

The deal may yet run into antitrust opposition. In December 1997 the Justice Department sued to prevent Alcoa from purchasing some of Reynolds' assets in Alabama, saying the purchase would result in higher prices. A day later, the companies abandoned the deal. "Since we looked at the previous proposal, it is likely we'll be looking at this one as well," said Gina Talamona, a spokeswoman for the Justice Department.

Still, analysts expect this proposal would survive regulatory scrutiny. In fact, some analysts suggested that the advent of two such big deals may help each one go through.

They reason that the Justice Department is likely to look more favorably on a strengthened Alcoa, now that it has the prospect of a far bigger Alcan operating across the border in Montreal, while the European Union will want a bigger presence in the aluminum industry to fight the specter of a joined Alcoa and Reynolds.

Moreover, Alcoa and Reynolds are not mirror images. Reynolds, for example, is big in aluminum packaging, which Alcoa has shunned. Alcoa is a huge supplier of aluminum sheeting for cans; Reynolds divested that business a few years ago.