‘Better late than never’: US giant Alcoa set to take over Australian partner in $3.3b deal

The largest investor in takeover target Alumina Limited has agreed to sell its nearly 20 per cent stake to Alcoa, describing the US giant’s $3.3 billion bid to consolidate ownership of their combined assets as “20 years too late” but “better late than never”.

Under the terms of an all-stock deal announced on Monday, Pittsburgh-based Alcoa is seeking to acquire ASX-listed Alumina Limited, its joint-venture partner in a global portfolio of bauxite mines, alumina refineries and aluminium smelters, including the Portland smelter in south-west Victoria.

The directors of Alumina Limited on Monday said they intended to recommend shareholders accept the proposed all-shares deal.Credit: Alcoa

The directors of Alumina Limited on Monday said they intended to recommend shareholders accept the proposed deal, under which Alcoa is offering 0.02854 shares for each Alumina share held, unless a better offer is made.

The all-scrip offer is priced at a 13.1 per cent premium to Alumina’s closing share price on February 23 of $1.02. Alumina’s shares jumped 7.6 per cent in early trade to $1.10.

Allan Gray Australia, which holds just under 20 per cent of Alumina’s stock, has already agreed to sell its shares to Alcoa. “I think this simplification is 20 years too late – but better late than never,” chief investment officer Simon Mawhinney said.

Alcoa is the operator of Alcoa World Alumina and Chemicals (AWAC), a joint venture with Alumina Limited. Buying its junior partner would give Alcoa full ownership of the venture, which ranks as one of the world’s largest producers of alumina, the key ingredient to make aluminium.

The tie-up, which will give Alumina Limited shareholders greater exposure to Alcoa’s broader global portfolio of production assets, will benefit both companies’ shareholders, Mawhinney said.

“There are a lot of things that result in the joint venture structure being inefficient, and this is a big step in the right direction,” he said.

Alcoa’s president and chief executive, William Oplinger, on Monday described the existing joint-venture structure as “extremely complex”, and pointed to greater opportunities to enhance value under a simplified ownership structure.

If the agreement is approved, Alumina shareholders will own 31.25 per cent of the combined company, and Alcoa’s shareholders will control the remaining 68.75 per cent, Oplinger told investors in a conference call early on Monday.

“We believe the acquisition would deliver significant value for both companies’ shareholders,” he said.

Analysts at merchant bank Morgan Stanley said there are unlikely to be other interested parties given alumina is such a niche commodity and Alcoa’s presence as a majority shareholder in the joint venture.

“The independent report is still a hurdle to cross, but we think the stars are aligned for the process to progress to completion with Alumina recommending the deal,” they said.

The AWAC venture operates or has an interest in bauxite mines and alumina refineries spanning Australia, Brazil, Spain, Saudi Arabia and Guinea and has a 55 per cent stake in the Portland aluminium smelter in Victoria.

Alcoa owns 60 per cent of AWAC’s entities, while Alumina Limited owns 40 per cent.

If the deal succeeds, two mutually agreed upon directors from Alumina’s board will be appointed to Alcoa’s board of directors. Alcoa said it would apply to establish a secondary listing on the Australian exchange to allow Alumina’s former shareholders to trade a common stock via a CHESS depository interest.

The fate of Alcoa’s Portland aluminium smelter and the 760 people it employs has often been in doubt, such as in 2019 when Alcoa unveiled plans to sell up to $1 billion of assets globally in the drive to boost its bottom line and cut greenhouse gas pollution. The smelter produces 20 per cent of Australia’s aluminium and is Victoria’s single largest energy user, making it a heavy carbon emitter.

However, Alcoa and generator AGL last year locked in a nine-year deal for the supply of 50 per cent of the electricity it needs, a deal Alcoa described as good news for the long-term future of the facility and its workforce.

In Western Australia, Alcoa is preparing to fully curtail the Kwinana alumina refinery.

“We’ve announced the Kwinana curtailment, and that’s a hard announcement to make, but Kwinana, based on its age and its complexity, is a high-cost facility,” Oplinger said on Monday.

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