Alcoa swoops with $3.4b bid to acquire Australia’s Alumina

Aluminium giant Alcoa has entered into an agreement to acquire 100% of its Australian partner Alumina (ASX: AWC).

Alumina owns 40% of Alcoa World Alumina and Chemicals (AWAC), a joint venture (JV) with Alcoa and is the operator of its global business.

The proposed deal will merge US-headquartered Alcoa’s ownership of a global portfolio of bauxite mines, alumina refineries and aluminium smelters including the Portland aluminium smelter in Victoria’s south-west.

Based on Alcoa’s closing share price as of 23 February, the agreed all-scrip bid ratio implies an equity value of approximately $3.4 billion for Alumina.

Alumina’s board has confirmed that, subject to entry into a scheme implementation agreement, it intends to recommend the transaction to the company’s shareholders.

Upon completion of the agreement, Alumina shareholders would own 31.25% of the combined company and Alcoa shareholders 68.75%.

The Alumina acquisition would consolidate Alcoa’s ownership of one of the world’s largest bauxite and alumina producers with tier-1 assets.

The company would significantly increase its ownership in five of the 20 largest bauxite mines and five of the 20 largest alumina refineries globally (excluding China).

Greater operational flexibility

Alcoa’s president and chief executive officer William Oplinger said the agreement would increase Alcoa’s economic interest in its core business and simplify governance by acquiring the minority partner in the AWAC JV, resulting in greater operational flexibility and strategic optionality.

He said it would also allow Alumina shareholders to participate in the upside potential of a stronger, better-capitalised company with a larger and more diversified portfolio while offering exposure to Alcoa’s upstream aluminum business.

“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 shareholders,” Mr 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 team to consummate a transaction that will better position Alcoa to execute on our long-term growth strategy.”

Western Australia commitment

He added that the acquisition would build on Alcoa’s commitment to Western Australia and provides significant benefits to employees, customers, host communities and others who rely on the continuing success of its global business.

The deal increases Alcoa’s exposure to its core tier-1 bauxite and alumina business and provides Alumina shareholders with exposure to Alcoa’s global aluminium business.

Under the proposed all-scrip agreement, Alumina shareholders would receive consideration of 0.02854 Alcoa shares for each Alumina share.

This consideration would imply a value of $1.15 per Alumina share based on Alcoa’s closing share price on the NYSE as at 23 February of US$26.525.

This represents a premium of 13.1% to the closing price of Alumina’s shares on 23 February 2024.

Additional listing

As part of the proposed transaction, Alcoa said it would apply to establish a secondary listing on the Australian Securities Exchange (ASX) to allow Alumina shareholders to trade Alcoa common stock via CHESS Depositary Interests (CDIs) on the ASX.

Under the terms of the agreement, two new mutually agreed upon Alumina directors would be appointed to Alcoa’s board upon closure of the deal.

Alumina’s largest holder Allan Gray Australia has entered into an agreement with Alcoa that gives it the right to acquire up to 19.9% of Alumina at the agreed price of 0.02854 Alcoa shares for each Alumina share.