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BHP is now driving on the right side of the road and SP now up 11 cents to $28.70 from low today of $28.31

BHP $28.70 +$0.11 +0.38% 8,587,289 $244,402,562 13-Feb 11:41:30
 
mb,

the times story:

"BHP Billiton and Rio Tinto both eyeing Alcoa as target

The TimesFebruary 13, 2007

BHP Billiton and Rio Tinto both eyeing Alcoa as targetDavid Robertson, Business
Correspondent

BHP Billiton and Rio Tinto have drawn up plans for a $40 billion (£20.5 billion)
takeover of Alcoa, one of the world’s largest aluminium groups, The Times has
learnt.

It is understood that the two are independently considering an approach for
Alcoa and have drawn up feasibility studies for a bid, but they are not thought
to have yet approached the board of the Pittsburgh-based company.
BHP and Rio, both Anglo-Australian mining giants with large aluminium
operations, are looking at ways to expand production as prices hit record
levels.

Alcoa is considering its own future and has drawn a list of potential new chief
executives, The Times has also learnt.
Ironically, BHP executives feature prominently on the wish-list of new leaders,
which is believed to have been put together at the request of Alcoa board
members.

Sources close to those on the list say that BHP’s outgoing chief executive, Chip
Goodyear, and the executive directors Marius Kloppers and Chris Lynch have been
approached or are being considered.

Mr Kloppers and Mr Lynch are also leading candidates to replace Mr Goodyear, who
is to leave BHP later this year.

Also on the list is Alcoa’s executive vice-president, Helmut Wieser. Another of
the internal favourites, Cynthia Carroll, is no longer available having taken
the top job in Anglo American.

BHP, which produces about 1.3 million tonnes of aluminium a year, is understood
to have done the groundwork on a bid for Alcoa.

Rio, which produces about 1.2 million tonnes of the metal, has considered a bid
for Alcoa, but is not thought to have progressed as far as BHP.

Any deal is likely to value Alcoa at more than $40 billion, which would make it
by far the largest target in the recent round of mining takeovers.

Last year Xstrata and CVRD set the pace in the mining sector with acquisitions
worth $17 billion and $19 billion. Freeport-McMoRan’s offer of $26 billion for
Phelps Dodge will be decided next month.

Alcoa is seen as a target by many analysts because it is struggling to expand
its business and compete with Russia.

Alcoa and Alcan, the traditional leaders in the aluminium industry, now trail
RusAl as the largest producer in the world.

Alcoa’s share price has also struggled, and was down nearly 30 per cent at its
worst point last year. The stock has since recovered some of its losses, partly
as investors anticipate a change in direction. Alcoa shares were among the
biggest midday risers on Wall Street yesterday.

A change of direction could be provided internally as Alcoa considers who could
succeed its chief executive, Alain Belda. Board members are understood to have
asked for external and internal candidates on the list of potential successors
ahead of the retirement next year of Mr Belda, 63. It is not clear what
involvement, if any, Mr Belda has had in succession planning.

Alcoa declined to comment last night, as did Rio Tinto. BHP said: “We look at
every possible opportunity that could grow the business.” "
 
I was thinking Alcoa could be a good investment at present but found the asx listing confusing. It seems to be in a trading halt & looking at the chart confused the hell out of me. Has anyone been following Alcoa lately/ know whats going on?
 

Apply the same valuation, BHP's uranium asset worths US$125b!, while BHP's market cap. is AU$100b. I cannot figure it out....

I strongly suggest that BHP to spin off the uranium project, create an ERA like company. So the uranium asset is not buried under base metal. The advantage of the tracking company is not only the value of the asset can be realized, but also the management can focus on project acquisition, development,lobbying, and rationalize the whole uranium industry in Aussie land, and in the whole world. It won't last forever that so many juniors releasing a few drilling holes everyday to pump up the stock price. Soon or late, the market will be tired of it. And the whole story will be stopped at uranium discovery, and no mining.

Ironically, there is the reason for a lucky few companies having flying start in the game such as PDN, NEL, RPT, PNN....
 
A rational investor should still value BHP's uranium assets properly without a spin-off. If they don't - all the better, its undervalued

Of course the major expansion at Olumpic Dam is a long way off, and the expansion itself will to cost about as much as the current combined market of ZFX & OXR
 
What would the affect of Alcoa buyout be on BHP share price?

I am assuming it will be negative in short term because purchasing another asset is more risky than keeping cash?? Further, bidding between RIO and BHP will cause the companies to pay higher price for the assets thus making the buyout less attractive..

Any other views?
 
It would be surprising to see either RIO or BHP take out Alcoa

Aluminium is a good business but not great, and both RIO and BHP would end up looking like Aluminium companies with a few other assets bolted on. Not so diversified anymore.

Plus Alcoa consume around 1% of the worlds total energy supply - not a great look when global warming is all the rage.

Smells like a media beat up
 

It depends !!!!

Watch the charts , if increased volume and price its a done deal post announcement usually, and usually price will increase. I like charts as it tells me whats happening, as the average investor is 3-4 days behind the mates rates that operate in fundamental analysis. Its not quite as simple as that as I tend to look in longer time frames, but if in doubt do a technical analysis course. It takes the uncertainty out of it all.

Garpal
 
I agree Haemitite.........

This is hardly the business that BHP or RIO would want to buy at this stage in the game.....

Plus, I would have thought that only BHP would be able to pull it off, and would have to use scrip to finance a $20 Bil US acquisition.......

Just doesn't make sense though - they would be better sticking to their diversified business model.... If you ask m, the media is just looking for a stock to talk up at the moment.....

Cheers
 
Hi all, first post here.

I have a pre print of tomorrow's paper, don't ask me where i get it but if anyone ever wants to know what the top stories will be tomorrow I am happy to oblige the information.

Big article that the media will be all over tomorrow states that both Rio and BHP have prepared their bids, as stated on this forum, however the article goes on to suggest that BHP is in the box seat to seal the 50 Billion dollar deal.
 
Don't have it tonight but can get it also. I prefer not to name the paper but lets just say its in massive circulation.
 
Tip on the fin also, they don't hit the printing press till 11:30PM at night so its too late for me to get info out from that print. The author of the article also asks Fat Prophets their opinion, and they said the current speculation 'could have legs'.
 
Ahha, got you. Just my lucky guess, and really I don't care which paper.

Anyway, It's not new news. The Australian had it yesterday, and the Times had it today. I believe both Rio Tinto and BHP know what they are doing. I am not going to judge whether it is right or wrong to do it or not to.

I can take care of their uranium business if they don't mind....
 
Having just run AA numbers, I would concur, the purchase of AA by BHP would undoubtably be a mistake for BHP [shareholders] and destroy value.

jog on
d998
 
Duc
Read your analysis on Alcoa - my points:

1. OK, they have plenty of debt. BHP doesn't exactly have that much debt at the moment. What's to stop them using a 100% scrip deal and with the free cash flow they are generating pay the debt off. I mean, you wouldn't say BHP would have a problem meeting these obligations and therefore reduce the gearing.

2. How do yo calculate intrinsic value - is this termination value of assets and liabilities (which I assume it is considering the valuation is so low), or a DCF analysis (which I sure is the premise BHP are working on)?

Duc, you seem overly negative to almost every deal at the moment. You obviously a very educated person, but I wonder why you think that you are smarter than thousands of accountants and investment bankers doing the calculations on these buy outs. I would be interested to see what your valuation methodology thought of BHP's acquisition of WMC. I remember everyone was saying it was a ridiculously expensive acquisition that BHP should never have done - history tells us now that got it for a song.....

I would say that whilst Alcoa is a great business that is undermanaged (and this is widely accepted), BHP is not likely to gain any major synergistic benefits from the organisation. It also de-deversifies there business from that of a mix of commods, to having a fair bulk now coming from Aluminum. So, rather than painting doom and gloom like Duc, I don't like the strategic fit here.

Cheers
 
reece55


If they have the scrip in the treasury, then a 100% scrip deal would make much more sense than cash. Pay for one overpriced asset with another overpriced asset.

If however they have to issue new scrip, you are diluting the existing shareholder base, and therefore not so good.

Part of the *debt* that they are paying off, consists of commercial paper and bank financing, for liquidity issues of inventory possibly already sold, thus the purchase of the debt does not correspond to any asset [except capitalized costs which as we see = $0.00]

2. How do yo calculate intrinsic value - is this termination value of assets and liabilities (which I assume it is considering the valuation is so low), or a DCF analysis (which I sure is the premise BHP are working on)?
Click to expand...

Well DCF it most certainly is not.


I never valued the WMC acquisition, so we have no direct comparison.
With regards to the investment bankers;

*how do they get paid?
*are they going to be holders of any part of the capitalization?

The answers are;
They get paid by claiming fees on each deal [circa 4% per deal]
They will hold nothing [save possibly a small freebie equity stake]
Therefore, almost by definition, they could care-less whether the deal makes good business sense, it makes good dollar sense for them.

When I value the company, it is because I place myself in the position of taking an equity or debt position. Therefore it must be conservative and the worst case scenario as a valuation before I would place MY MONEY into the proposition.


Certainly the strategic fit, is being propagated by many analysts as to why BHP wouldn't want this acquisition.

However, where there is smoke, sometimes there is a fire. BHP is loaded with cash..........cash burns holes in pockets, and I smell a little smoke.
It may well be extinguished, we'll see.

jog on
d998
 
I also don't think BHP would even want to look at this!

Why would they, at this stage of the cycle, want to buy a business like Alcoa, which uses amazing amounts of energy requiring cheap power (therfore a political risk), is not a pure mining play (execution risk) and is very susceptible to the effects of carbon trading (risk, risk, risk).

I can see heaps of other companies they could go for with better prospects than this one. It's just rumour.
 
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