Aluminum Producer Alcoa Makes $2.2B Bid For JV Partner Alumina

Alcoa Corp.AA, a leading U.S. aluminum producer, has made a $2.2 billion offer to acquire Alumina Ltd AWCMF, its Alcoa World Alumina & Chemicals (AWAC) joint-venture partner. The offer comes at a volatile time for the commodities industry, with notable M&A activity.

Per the all-stock deal, Alcoa is offering 0.02854 of its own stock for each Alumina share, representing a 13.1% premium over Alumina’s closing share price on Friday. After turning down earlier offers, Alumina’s board has endorsed this deal. Additionally, Alcoa has secured an agreement to acquire Allan Gray Australia's 19.9% stake in Alumina, solidifying its majority ownership.

"Alcoa has been a proven operator of AWAC, and we recognize the value creation opportunities possible under a simplified ownership structure," said William F. Oplinger, Alcoa's president and chief executive.

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Despite recent challenges, including refinery problems and a shift to lower-grade bauxite mining in Western Australia, Alcoa believes the acquisition will enhance its exposure to top-tier bauxite and alumina businesses.

If successful, this action would grant Alcoa complete control of AWAC, which is recognized as the world’s largest producer of semi-processed aluminum. According to Alumina, the global network of AWAC's refineries accounts for nearly 10% of the world's production.

The bid comes after Alcoa’s recent management shake-up, triggered by operational and permitting challenges in Australia, particularly in its bauxite mining business. In January, per a Reuters report, Alcoa announced a cease of production at its Kwinana alumina plant in Western Australia to streamline operations further.

Aluminum, a versatile metal used in various applications such as window frames and aircraft parts, is poised for sustained growth. The shift towards cleaner energy sources, including electric vehicles and wind and solar power, is expected to drive long-term consumption. Yet, after peaking at $3,866 per ton in February 2022, aluminum prices have deflated, spending most of 2023 in a tight consolidation around the $2,200 level – indicating a potential incoming breakout.

"Globally, growth in aluminum-intensive EVs and renewable power infrastructure will continue to support this positive trend," Oplinger said during an earnings call last month.

Alumina has enlisted the expertise of Flagstaff Partners and BofA Securities as financial advisers, with legal counsel provided by King & Wood Mallesons. JPMorgan Securities and UBS Investment Bank are acting as financial advisers to Alcoa, with legal counsel from Ashurst and Davis Polk & Wardwell LLP.

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Image created using artificial intelligence with MidJourney.