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. Last Updated: 07/27/2016

Alcan Launches Unfriendly Bid

LONDON -- Canadian aluminum maker Alcan Inc.'s takeover bid for Pechiney, if successful, could lead to the disposal of some of the French firm's European downstream assets to overcome competition concerns, analysts said Monday.

Alcan Inc launched the 3.4 billion euro ($3.9 billion) cash-and-stock bid for French rival Pechiney in a deal that would create the world's largest aluminum group by revenues and second largest in terms of production and capacity.

A little more than three years ago Alcan, Pechiney and Switzerland's Algroup were forced to abandon a planned three-way merger because of competition-related objections by the European Commission, the European Union executive.

"Most people will look at this and say it recreates the APA [Algroup, Pechiney, Alcan] merger deal that collapsed," Adam Rowley, analyst at Macquarie Equities said.

After Pechiney withdrew from that deal, Alcan went on to acquire Algroup.

Rowley said Alcan would probably have to undertake to sell off Pechiney's European rolling mills to allay anti-trust concerns.

He added, "Pechiney has expressed concern that this is bad news for jobs in France and there are also concerns that Alcan might reduce smelting capacity in France."

Analysts said that Alcan's interest in Pechiney probably stemmed from Pechiney 's advanced technology and its downstream capabilities.

"The technology side of the business is seen as attractive. Pechiney is the major provider of greenfield technology for new smelters in the West," Rowley said.

"We presume one of the big attractions of the deal for Alcan is Pechiney's strong technology position, especially in primary smelting. Pechiney is having trouble launching its AP50 technology, partly because of its aversion to taking a majority stake in a model project in South Africa. The merger could solve that problem," British-based consultancy CRU said on its web site, www.crumonitor.com.

Pechiney has previously said it will build a 500,000 ton per year smelter in South Africa which is expected to start construction in 2004. However, Rowley thought Alcan was most keen to acquire Pechiney's downstream activities.

"I think the offer is more driven by interest in the packaging side than the technology," he said.

Both companies have a range of downstream assets, including flat-rolled products packaging, foil and aerospace material.

"Alcan in particular is heavily involved in providing flat rolled metal for beverage cans. Pechiney's assets are further downstream -- foil type products and flexible packaging," Rowley said.

"In packaging, Alcan has just completed the acquisition of VAW's packaging assets from Hydro, which, put together with the already large packaging business it acquired with Alussuise, already gives it a strong position in Europe," CRU said.

Analysts said Alcan's offer was made at the bottom of the business cycle at a time when cyclical stocks could start to move higher.

Market watchers said the aluminum market was unlikely to see many repercussions from the proposed merger.

"I can't see any major impact on the metals market. On the alumina side, Pechiney is fairly balanced. You won't see Alcan suddenly coming to the market buying alumina.

"On the primary side it would increase Alcan's market share, but I don't think one could look at that and suggest it will make any great difference. It's industry consolidation, but it won't move the price," Rowley said.

However, Ingrid Sternby, base metals analyst at Barclays Capital, said: "We would regard this development as positive for the aluminum market, as increased concentration would give greater room for manoeuvre at times of over production and demand weakness."