Alcoa expects to take out Australian accomplice Alumina in $2.2 billion arrangement

 By Echha Jain and Melanie Burton 

Reuters, MELBOURNE -The Australian joint venture partner Alumina (OTC: AWCMY) of American aluminum producer Alcoa (NYSE: AA) received a $2.2 billion all-stock buyout offer on Monday. The merger would simplify Alumina's operations and increase its exposure to upstream markets. 

The single asset owned by Alumina is a forty percent share in the Alcoa World Alumina and Chemicals (AWAC) joint venture. Alcoa controls AWAC and is involved in the mining, refining, and smelting of aluminum in Australia, Brazil, Spain, Guinea, and Saudi Arabia. 

Analysts were informed by Alcoa CEO William Oplinger that the acquisition would remove Alumina's annual overhead expenditures of A$12 million ($7.87 million) and enable the merged business to take advantage of tax benefits associated with debt holding.

Furthermore, he said, Alcoa will have more growth possibilities thanks to its wider global base.

As per the planned deal, shareholders of Alumina would hold a 31% stake in the combined firm, with each share they held equaling 0.02854 shares of Alcoa common stock. Based on the closing price of Alcoa on Friday, this suggests that the value of an Alumina share is currently A$1.15.

On Monday, Alumina's stock ended the day 7 Australian cents higher at A$1.09.

The Melbourne-based business stated that, in the lack of a better offer, its board supported the transaction, but it added that there was no guarantee the proposal would be made legally enforceable.

Just under 20% of Alumina is owned by investment management Allan Gray Australia, the company's largest stakeholder, 

Alumina was made from a 2002 de-consolidation of WMC Ltd's alumina resources and an Alcoa buyout has been seen as consistent by experts for over twenty years.

AWAC likewise has a 55% interest in the Portland aluminum smelter in Australia with China's CITIC Assets and Japan's Marubeni.

CITIC Assets and different auxiliaries of its parent CITIC Ltd hold a consolidated 19% stake in Alumina, as per CITIC Assets' 2023 break report, making the Chinese gathering the second-biggest investor. CITIC didn't answer promptly for a solicitation for input on whether it supported the Alcoa offer.

"We accept this exchange seems OK, however, the financial potential gain to Alcoa is counterbalanced by the premium paid," Jefferies explained in a note on Alcoa.

"We would anticipate that investors of the two organizations should decide in favour of this exchange, albeit this isn't sure as AWC investors might be frustrated by the generally little premium in an all-share bargain."

The arrangement offered a 13% premium to Alumina's last shutting cost, beneath more regular takeover charges of around 30%.

The Alcoa proposition comes at a difficult stretch in the alumina business because of low costs.

Alcoa said in January it wanted to stop creation this year at AWAC's misfortune-making Kwinana alumina processing plant in Western Australia because of testing economic situations and the office's age.

($1 = 1.5256 Australian dollars)