Pittsburgh-based Alcoa Inc.'s $33 billion hostile bid for competitor Alcan Inc. of Montreal could carry heavy implications for the firms' plastics packaging assets.
One year from now, should the deal be approved, the plastics industry could expect to see both companies exiting plastics, according to several industry sources.
``I think this foreshadows a formal disposition,'' said Howard Snyder, vice president of Curtis Financial Group LLC in Philadelphia. ``There will be no packaging pieces in a year.''
Alcoa offered $73.25 per share in cash and stock for Alcan, with whom it parted ways in 1950 amid regulatory concerns.
Alcoa and Alcan, whose core businesses are aluminum, each have built up positions in plastics over the years.
Alcoa's assets include Closure Systems International and Reynolds Food Packaging. Alcan's assets include those acquired in the 2003 acquisition of Pechiney SA of Paris.
According to Wachovia Capital Markets LLC of New York, Alcan's packaging business at $6 billion in sales is nearly twice the size of Alcoa's unit and is far more profitable, with a profit margin of 10 percent in 2006 vs. 4 percent for Alcoa.
The proposal, with plenty of regulatory hurdles, comes on the heels of massive consolidation in steel, according to analyst Ghansham Panjabi of Wachovia.
``We believe that the announcement could accelerate the planned strategic review of [Alcoa's] packaging business, in an effort to raise incremental capital to support their bid, supporting our ongoing view that the mini-boom in packaging [mergers and acquisitions] should continue over the near to medium term,'' Panjabi wrote in a May 10 research note.
Since shedding its polypropylene barrier bottle business to Ball Corp. last year, Chicago-based Alcan Packaging streamlined itself to concentrate on core areas. The company wants to grow both organically and via acquisition, according to Ilene Gordon, president and chief executive officer of Alcan Packaging.
``We've done significant portfolio cleaning and we've actually exited 45 plants'' that were part of 11 businesses, Gordon said in an address at the recent Packaging Strategies conference.
Alcoa officials said in a May 7 conference call that the firm's focus is to position itself to compete in an evolving global market for aluminum.
``Aluminum demand is expected to double over the next 15 years, with emerging economies leading the way,'' said Alcoa Chief Executive Officer Alain Belda during that call. ``Emerging global players in Russia, China, India and the Middle East are quickly expanding and adding capacity on a global basis. I hope that this combination can move forward with the support of Alcan management and board. The world is changing quickly and we must adjust our thinking accordingly to be successful. We must deal head-on with the realities of our competitive marketplace and the effects of globalization.''
Alcoa announced just a few weeks ago that it wants to sell its consumer and packaging units.
``Obviously, Alcan has a packaging business and they have stated that they intend to keep it and grow it,'' Belda said. ``It is too early for us to take a position on the future of the Alcan packaging business. But I can assure you that we will review the matter in detail at the appropriate time and make a decision that brings the most value to our shareholders.''
For its part, Alcan did not solicit the bid from Alcoa, officials said in a May 7 response to Alcoa's bid. Alcan's board will consider the proposal and how it could impact the interests of shareholders.
Still, as aluminum takes center stage, Alcoa is prepared to divest as needed.
``We are prepared to make the necessary targeted divestitures in appropriate industry segments,'' Belda said. ``Finally, we are confident that the transaction will be approved.''