In trending news on Australian stocks, ASX-listed Alumina Limited (AU:AWC) has agreed to the buyout offer made by American joint venture partner Alcoa (NYSE:AA) in a $2.2 billion (AU$3.3 billion) deal. The all-stock exchange deal will involve Alumina shareholders receiving 0.02854 shares of Alcoa for every share held by them. Following the news, AWC shares ended up 6.9% at AU$1.09 today.
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Alumina’s sole investment and mining operations are through Alcoa World Alumina and Chemicals (AWAC), the world’s leading producer of alumina and bauxite. AWAC is a joint venture between Alumina (40% ownership) and the American mining giant Alcoa.
Details About the Deal
Alcoa’s offer price represents a roughly 13% premium to Alumina’s closing share price on Friday, February 23. Alumina’s board is recommending shareholders to approve the acquisition as it is in their best interests in the absence of any superior offer. Meanwhile, Alcoa has ensured that it wins the maximum shareholder votes for the takeover by roping in the support of fund manager Allan Gray Australia, which owns a 19.9% stake in Alumina.
On the successful completion of the takeover, Alumina shareholders would own 31.25% while Alcoa shareholders would own 68.75% of the combined entity. Alcoa is also considering a secondary listing of the newly formed company on the Australian Securities Exchange. This will enable Alumina shareholders to easily trade Alcoa common stock via CHESS Depositary Interests on the exchange.
For both Alcoa and Alumina, the takeover is a natural transition as both have been partners in AWAC for years and understand each other’s operations. For Alcoa, particularly, the deal means that it will be less reliant on other suppliers for bauxite and alumina and better adjust to fluctuating commodity prices. The acquisition will also give Alcoa access to five of the world’s largest and premium bauxite-producing mines and five of the best-quality alumina refineries outside of China. The usage of alumina is expected to bolster over the years due to the adoption of greener energy resources and the growing adoption of electric vehicles.
Commenting on the deal, Alcoa president and CEO Bill Oplinger said, “We recognize 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.”
Is Alumina a Good Buy?
Following the news, Morgan Stanley analyst Rahul Anand noted that there are high chances of the acquisition going ahead since Alcoa is already a majority owner in AWAC, there are no better bids in sight, and the deal already has Alumina’s board’s support.
With four Buys and one Hold rating received before the acquisition news, AWC stock commands a Strong Buy consensus rating on TipRanks. The Alumina Limited share price target of AU$1.14 implies 4.1% upside potential from current levels.
