Alcoa, the U.S. aluminum producer, unveiled a $2.2 billion all-stock acquisition offer for its Australian joint venture collaborator, Alumina, on Monday. This proposed buyout signifies a strategic maneuver for Alcoa, aiming to enhance its upstream exposure and streamline its operations. Acquiring Alumina, a key producer of the raw material for aluminum, is a calculated step by Alcoa to reinforce its position in an industry grappling with supply chain challenges and elevated operational expenses.
The deal would value Alumina at around 3.35 billion Australian dollars ($2.20 billion), a 13% premium to its closing price on Friday. Pittsburgh-based Alcoa said it would exchange 0.02854 of its shares for each Alumina share, representing an offer of AU$1.15 per Alumina share. Alumina’s board will recommend shareholders accept the bid, subject to customary conditions, including approval from regulators and shareholders.
Alumina’s only asset is a 40% stake in the Alcoa World Alumina and Chemicals (AWAC) joint venture, which is controlled by Alcoa and has interests in bauxite mining, alumina refining, and aluminum smelting across Australia. AWAC is one of the world’s largest producers of Alumina, which is then turned into aluminum, a semi-finished metal used in products such as beverage cans, airplane parts, and window frames.
Alcoa’s acquisition of Alumina will allow it to gain complete control of AWAC, which is critical to improving its profitability in a challenging market. The company said it would also simplify its corporate structure and improve operational and strategic flexibility and optionality.
As part of the deal, alumina producers can use opportunities to develop expansion projects within AWAC without needing permission from the other partners in the joint venture. However, the partners will have to pay for AWAC resources or facilities used for such projects.
The transaction is expected to close by the end of June and is subject to regulatory and shareholder approvals. Alcoa’s board has unanimously backed the proposal.
The company is paying a lower than typical takeover premium for the deal because it believes that the enlarged group will benefit from a stronger balance sheet and a broader global footprint, the companies said. Alumina’s directors and shareholders will receive a total of 0.02854 of Alcoa’s shares for each Alumina share, the companies said. Alcoa will hire Flagstaff Partners and BofA Securities as financial advisers, with King & Wood Mallesons and Davis Polk & Wardwell advising it on legal matters. CITIC Resources and other subsidiaries of its parent, CITIC Ltd, hold a combined 19% stake in Alumina, according to 2023 interim reports. The Chinese group did not immediately respond to a request for comment on whether it would back the offer.