Alcoa bid a ‘let-down’
Offer on Alumina is low but no other takers in sight
Alcoa’s takeover price for joint venture partner Alumina has been described as “a long time coming and ... a little bit of a let-down’’, however analysts do not see a competing bid arising.
Alumina on Tuesday reported a full year net loss of $US150m, in what the company said was a “difficult year” characterised by lower production volumes, higher production costs and lower alumina prices.
The company, which on Monday revealed its joint venture partner Alcoa had launched a $3.4bn scrip-based takeover bid for it, will not pay a full-year dividend for the second year in a row.
Some analysts said NYSElisted Alcoa’s offer price of 0.02854 shares for each Alumina share was well below their valuations.
Goldman Sachs analyst Paul Young, speaking on an investor call with Alumina management on Tuesday, said “it’s been a long time coming and does seem a little bit of a let-down’’.
“I think some are probably looking for a bigger premium,’’ Mr Young said.
In a research note released on Monday, Goldman Sachs said its 12-month price target for Alumina was $1.39 per share, against the implied value of $1.15 for the bid.
Alumina owns 40 per cent of the Alcoa World Alumina and Chemicals (AWAC) joint venture with Alcoa, which was formed in 2002.
“The proposal comes following a challenging past 12 months for the AWAC alumina joint venture with uncertainties around Western Australian bauxite approval timelines, lower bauxite grades impacting WA alumina production, elevated unit costs in Spain, and weak seaborne alumina prices, resulting in declining margins,’’ Goldman Sachs said.
The broker said the company could restructure into a “lower cost, more profitable alumina business’’ with the closure of the loss-making Kwinana and San Ciprian refineries, and forecast it would return to dividends in 2025.
Morgan Stanley analysts said while the bid price was in line with consensus estimates, it was below their base case valuation of $1.40 per share.
“We note however, that there are unlikely to be other interested parties given the commodity being niche and also the underlying business (AWAC) shareholding being a minority of which Alcoa already owns the majority,’’ the broker said.
“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.’’
Alumina managing director Mike Ferraro said on Tuesday there had been “a range of negotiations and discussions with Alcoa over the years and it’s been really hard to settle on relative value depending on where the share prices were at the time”.