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Aussie admirers gazing at Alcoa

| Wednesday, Feb. 14, 2007

Aluminum giant Alcoa Inc. is said to be the object of independent $40 billion takeover bids being prepared by two foreign corporations, including the world's biggest mining company.

BHP Billiton and Rio Tinto, the world's second-largest iron ore producer, are assembling offers for Alcoa, the Times of London reported. Both mining companies are based in Melbourne, Australia.

Even if no marriage is forthcoming -- and some experts doubt it is -- Alcoa's stock is flush with the attention. Company shares shot up $2.10 on Tuesday to close at $35 for the day, one of its biggest daily gains in about four years.

Alcoa, the world's largest aluminum producer, is drawing the interest because analysts think global demand for the strong, lightweight metal is destined to grow in the years ahead, especially in China's surging economy. Aluminum is used in products from aircraft to car parts to beverage cans.

"The story falls into the realm of speculation and rumor, and the company has a policy of not commenting on rumors and speculation," said Alcoa spokesman Kevin Lowery. "It's not prudent or practical to do so."

BHP denied it was trying to acquire Alcoa, said Reuters. Rio Tinto declined to comment.

"Those two guys can do it. The money is not a problem," said Charles Bradford, a veteran metals analyst with Soleil Securities, New York. He described the Australians' pending offers as "absolutely possible."

Both of the rumored bidders in the past month have said publicly that they are seeking acquisitions. Both have the cash to spend on a mega-deal because of a four-year boom in the commodities business.

Alcoa employs 129,000 people -- about 2,000 in the Pittsburgh region, including at its corporate center on the North Shore.

Bradford, however, said that BHP and Rio Tinto "have shown no interest at all in the downstream aluminum business in the past." That segment refers to the finished plates and sheets that aluminum makers sell to parts and container manufacturers. The "upstream business" is the mining end.

"They are upstream natural-resource companies, and that is very different from what most of Alcoa's revenues are generated from," said Bradford. That would mean that if BHP or Rio Tinto were to acquire Alcoa, they possibly would sell its downstream aluminum businesses.

Of the two potential acquirers, Rio Tinto might be more likely to pursue a deal, said Mark Pervan, Daiwa Securities SMBC head of research. BHP's business mix is already providing solid growth options without doing a merger, he said.

"Rio Tinto, on the other hand, is returning nothing to shareholders, has a stronger balance sheet, and had less internal growth options," Pervan said in a research note.

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