Alcoa makes $3.4bn bid for JV partner Alumina Limited

Major aluminum producer Alcoa has inked a $3.4 billion deal to acquire Alumina Limited in a move it says reaffirms its commitment to Western Australia after confirming it would cease production at its Kwinana refinery. 

Alcoa announced it had entered into an all-scrip agreement with ASX-listed and joint venture partner Alumina Limited, under which the target’s shareholders would receive 0.02854 Alcoa shares for each Alumina share held.

Based on Alcoa’s last share price, the deal is valued at about $3.4 billion ($US2.2 billion).

US-listed Alcoa said the proposed acquisition reaffirmed its committed to WA and would increase its financial flexibility for its WA mining projects and near-term portfolio actions.

The comments come after Alcoa confirmed it would cease production at its Kwinana alumina refinery this year, citing challenges such as age, scale, operating costs, and current bauxite grades as reasons for what it called a “curtailment”.

“The proposed acquisition of Alumina Limited builds on Alcoa’s commitment to continued productive relationships built on engagement with local communities, significant employment, and improved environmental performance,” Alcoa said in a statement today.

“The proposed acquisition would better position Alcoa to continue its long-term plan of investing in Australian bauxite mining and alumina refining."

Late last year, Alcoa promoted Perth-based Matt Read to global chief operations officer and executive vice-president.

The two producers have entered an exclusivity and transaction process deed, and Alumina’s board intends to recommend the transaction in the absence of a superior offer.

Upon completion of the proposed deal, Alumina shareholders would own 31.25 per cent of the combined company, and Alcoa shareholders would own the remaining 68.75 per cent.

Alcoa and Alumina Limited have been engaged in a 60-40 joint venture, named Alcoa World Alumina and Chemicals, since at least 1994 when it was formed.

The AWAC joint venture, through its entities, operate or have an interest in bauxite mines and alumina refineries in Australia and overseas, including operations at Pinjarra, Wagerup and Kwinana.

It comes after Alcoa said it would need to source an additional one million tonnes of alumina to cover the output of its planned Kwinana refinery closure.

In a statement, Alcoa said the agreement would increase its economic interest in its core business and simplify governance by acquiring the minority partner in its AWAC joint venture, resulting in greater operational flexibility and strategic optionality.

“We are pleased to have entered into the transaction process and exclusivity deed to finalise the terms of the transaction, which will provide significant and long-term benefits to both Alcoa and Alumina Limited shareholders,” Alcoa chief executive and president William F Oplinger said.

“Alcoa has been a proven operator of AWAC, and we recognise 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.

“We believe now is the right time to consolidate ownership in AWAC and look forward to working closely with the Alumina Limited team to consummate a transaction that will better position Alcoa to execute on our long-term growth strategy.”

Alumina's largest holder, Allan Gray Australia, has agreed to hand over its 19.9 per cent stake.

Alcoa has financial advisers J.P. Morgan Securities LLC and UBS Investment Bank lawyers Ashurst and Davis Polk & Wardwell LLP in its corner.