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(Bloomberg) — US aluminum producer Alcoa Corp. made a $2.2 billion offer to acquire its Australian joint-venture partner Alumina Ltd. to consolidate ownership of key upstream assets with long-term demand for the metal forecast to rise.
The offer marks a premium of about 13% to Alumina’s closing share price on Friday. The Australian company’s board plans to support the deal, under which Alumina shareholders will receive Alcoa stock, if the sides get to a definitive agreement following further discussions, it said in an exchange filing on Monday.
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Alumina’s shares rose as much as 9.3% in early trading Sydney, and were up 6.6% at A$1.09 as of 12:50 p.m. local time.
Buying its junior partner would give Alcoa full control of Alcoa World Alumina & Chemicals, the world’s largest producer of the semi-processed form of the metal. The offer comes about five months after Alcoa shook up its management amid struggles with operational and permitting setbacks in Australia for its bauxite mining business. It also announced plans in January to halt production at its Kwinana alumina plant in Western Australia to cut costs.
Aluminum has a wide variety of uses including window frames and aeroplane parts. Over the longer term, consumption is expected to be supported by the transition to cleaner sources of energy including electric vehicles and wind and solar power.
“Globally, growth in aluminum intensive EVs and renewable power infrastructure will continue to support this positive trend,” Alcoa Chief Executive Officer William F. Oplinger said on an earnings call last month.
Alcoa offered 0.02854 of its shares for each of the remaining shares in Alumina, which owns 40% of AWAC. The US company has also agreed to buy Allan Gray Australia’s 19.9% stake in Alumina.
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Read More: Alcoa Offer for JV Partner Alumina at 13% Premium: M&A Snapshot
“The stars are aligned for the process to progress to completion, as Alumina is recommending the deal,” Morgan Stanley analysts including Rahul Anand said in a note. “There are unlikely to be other interested parties given the commodity being niche and also the underlying business shareholding being a minority (40%), of which Alcoa already owns the majority.”
AWAC has an international network of alumina refineries in Australia, Brazil, and Spain, and is responsible for almost 10% of world alumina production, according to Alumina’s website.
Refinery Problems
Alcoa last month warned investors that it now plans to mine lower-grades of bauxite, a key raw material needed to make aluminum, in Western Australia until it gets to its next mining phase, which could be around 2027. The plant was the first of the company’s three alumina refineries in the state that have been operating for around 60 years.
If approved, the takeover will increase its exposure to “tier-1” bauxite and alumina businesses and boost its global position as a pure-play upstream aluminum producer, the US company said in a separate statement.
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“We recognize the value creation opportunities possible under a simplified ownership structure, including the ability to implement AWAC’s operational and strategic decisions on an accelerated basis,” Oplinger said in the statement. “We believe now is the right time to consolidate ownership in AWAC.”
Alumina has hired Flagstaff Partners and BofA Securities to act as financial advisers and King & Wood Mallesons as legal adviser it said. JPMorgan Securities LLC and UBS Investment Bank are acting as financial advisers to Alcoa, and Ashurst and Davis Polk & Wardwell LLP are acting as its legal counsel, the company said.
—With assistance from Paul-Alain Hunt.
(Updates with details from Alcoa statement throughout; Alumina share price in third paragraph)
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