Australia's Alumina Receives $2.2 Billion Acquisition Proposal from Alcoa

U.S.-based aluminum producer Alcoa (AA.N) unveiled a $2.2 billion all-stock buyout proposition for its Australian joint venture associate on monday, Alumina (AWC.AX), in a strategic move aimed at enhancing its upstream exposure and streamlining its operations.

Alumina's sole asset comprises a 40% interest in the Alcoa World Alumina and Chemicals (AWAC) joint venture, predominantly controlled by Alcoa. AWAC boasts investments in bauxite mining, alumina refining, and aluminum smelting spread across Australia, Brazil, Spain, Saudi Arabia, and Guinea. The proposed acquisition aims to eradicate Alumina's annual overhead costs of A$12 million ($7.87 million) and leverage the combined entity's tax advantages linked to debt holdings.

The enlarged global footprint resulting from the merger would afford Alcoa greater growth opportunities. Under the terms of the proposed transaction, Alumina shareholders would receive 0.02854 shares of Alcoa common stock for each share they hold, granting them a 31% stake in the amalgamated entity. Based on Alcoa's closing price as of Friday, this equates to a value of A$1.15 per Alumina share. On Monday, Alumina's shares saw a modest increase of 7 Australian cents to A$1.09, while Alcoa's shares experienced a 2.9% decline in U.S. premarket trading.

The board of Melbourne-based Alumina has thrown its weight behind the proposal, given the absence of any superior offers. However, it also highlighted the lack of certainty regarding the proposal's binding nature. Notably, Alumina's principal shareholder, investment manager Allan Gray Australia, holds a stake of just under 20% in the company, which it has agreed to divest to Alcoa.

Alumina emerged from the 2002 demerger of WMC Ltd's alumina assets, and have long viewed an acquisition by Alcoa as a logical step. Additionally, AWAC holds a 55% interest in the Portland aluminum smelter in Australia, alongside China's CITIC Resources (1205.HK) and Japan's Marubeni (8002.T). CITIC Resources and affiliated subsidiaries of its parent entity CITIC Ltd collectively hold a 19% stake in Alumina, making the Chinese conglomerate the second-largest shareholder.

While the proposed deal offers a 13% premium to Alumina's recent closing price, it falls below the customary takeover premiums of approximately 30%. Alcoa's proposal arrives amid challenging times for the alumina industry, grappling with subdued prices. In January, Alcoa announced plans to halt production later this year at AWAC's Kwinana alumina refinery in Western Australia, citing challenging market conditions and the aging infrastructure of the facility.

Alcoa Corporation, headquartered in Pittsburgh, is a leading global industrial firm. Ranked as the eighth-largest aluminum producer worldwide, Alcoa engages extensively across various sectors of the industry. It is involved in primary aluminum production, fabrication, and alumina manufacturing, with a strong presence in technology, mining, refining, smelting, fabrication, and recycling.