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Alcoa’s legal teams have compiled a list of disposals that will be proposed to the DoJ as a voluntary remedy in its merger with Alcan, said a source close to the situation. “We are potentially looking at a multi-billion dollar disposal program,” the source said.
The source was unclear, however, as to what order these assets will be proposed to the DoJ, but the idea, he said, is to do it in slots. He added that both Alcoa’s bankers and lawyers are trying to persuade Alcan that this merger could work, and the two companies do not have to lose half of their refinery business in the process of getting the deal done.
A draft list for disposals being considered, but which the source said could get larger, includes Alcan’s Ravenswood rolling complex in West Virginia and the North America alumina refineries. The latter, the source said, is one major area of concern that would go through a rigorous review. The Ravenswood refinery, on the other hand, would “take care of a lot of problems”, the source said, and will be one of the first assets to be presented to the DoJ, if it gets to that point.
Other assets in North America that could be divested, according to the source and an industry banker, include Alcan’s aluminum bumper plant in Novi, Michigan, and the aerospace sheets division. Both the source and industry banker agreed that in Europe, Alcan’s French refinery and Alcoa’s Spanish refineries will have to be reviewed. In addition, a number of other specialty sheets, alumina trihydrate and aerospace sheets will be added to the list.
The source said a refinery in Quebec might also have to be divested, although a second source close to the deal said he did not expect that to be necessary. Two industry bankers also questioned whether a sale of a Quebec refinery would be feasible. The second banker said that any buyer for Alcan is not going to be able to divest assets in Quebec and satisfy a continuity agreement that the aluminum producer has in place with the Provincial government. The banker argued that the agreement is critical to Alcan’s value. “So everything in Quebec stays there,” he said.
On 17 May, Alcoa acknowledged the importance of the issue, announcing that it reviewed Alcan’s continuity agreement with the Government of Quebec which identifies the requirements that Alcoa must meet regarding Alcan’s future operations in the Province in order to maintain certain of Alcan’s hydroelectric and water rights.
The first source close to the deal also said that Alcoa Point Comfort in Texas would have to be divested, but the first industry banker disagreed, again questioning the purpose. “That’s a bit of a question mark,” he said. The banker noted that he did not expect any further assets to be sold in North America.
The transaction is subject to review by antitrust authorities in various jurisdictions including the US, Canada, the European Union, Australia and Brazil. It also requires foreign investment clearance in Canada, France and Australia.
Although Alcoa is targeting to complete the transaction by the end of 2007, the first industry banker speculated that the timetable will keep getting pushed back.
When asked about a realistic timeframe in gaining all the clearances, the first industry banker said approximately six to eight months. The second industry banker agreed, adding that the first step is gaining antitrust clearances, which could easily take half a year, and then on top of that, local Canadian clearances. “There are not only approvals at the federal level, but also on the provincial level. There are approvals that are needed in Quebec, so there is obviously a lot of time,” the second industry banker said.
With reference to prospective buyers for the divested parts, a third industry banker said the downstream assets would be of interest to private equity suitors. He commented that there is an abundance of liquidity among financial buyers and provided the example in which Apollo last year purchased the former Noranda Aluminum assets from Canadian nickel miner Falconbridge following its merger with Xstrata.
The second industry banker agreed with this type of buyer, adding that PEs would not only be interested in rolling up the downstream assets but in being sector players in general. “I think if [the assets] were put up for sale, there would be scores of private equity that would have an interest,” he said.
Most recently, Alcan reached an agreement to sell its Vlissingen smelter in the Netherlands to UK private equity firm Klesch & Co.
Additional reporting by Claudia Montoto
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