Reynolds Foils Alcoa’s Buyout Bid, Calls Offer Inadequate

RICHMOND, Va. â€”  Reynolds Metals Co. on Sunday rejected a multibillion-dollar takeover bid by Alcoa Inc. as inadequate, a decision that is likely to set off a bidding scramble for the No. 3 aluminum manufacturer.

Reynolds, which produces metal for its namesake aluminum foil as well as cars, beverage cans and other consumer products, didn’t say whether its board decided to accept or reject a separate offer from Michigan Avenue Partners, which on Friday said its all-cash bid was worth more than Pittsburgh-based Alcoa’s half-cash, half-stock offer of $65 a share, or about $4.2 billion based on the number of Reynolds shares outstanding.

Reynolds shares, which rose 20% last week, have traded above Alcoa’s $65 offer on speculation it would get a higher bid. Reynolds rose $3 to close at $69.38 on Friday.

Consolidation in the aluminum industry has been driven by the need to cut costs after prices hit five-year lows in March. Richmond, Va.-based Reynolds, which unanimously rejected Alcoa’s offer, could fetch more than $70 a share, or at least $6 billion, analysts said.

“The ball is now back in Alcoa’s court,� said Vahid Fathi, an analyst at ABN Amro in Chicago. “This thing is going to come to a head quickly. Before the end of the third quarter, I think the fate of Reynolds will be decided.�

Reynolds’ board of directors held a special weekend meeting Sunday to discuss the Alcoa offer. Afterward, the company issued a statement calling the Alcoa bid “inadequate� and saying the board decided unanimously that Reynolds “should explore all alternatives to maximize shareholder value, including the sale of the company.�

Whether the alternatives would include soliciting rival bids to Alcoa’s offer was unclear. Lou Anne Nabham, a spokeswoman for Reynolds, declined to elaborate on the company’s statement.

Fathi and others have said a third or even fourth company may make a bid for Reynolds. They mentioned Billiton, Britain’s third-largest mining company, and Norsk Hydro, the world’s largest magnesium producer.

Norsk Hydro, based in Norway, and Germany’s Viag may be the next to combine, analysts have suggested, although the companies said they weren’t in merger talks.

“Further consolidation, particularly in Europe, is likely,� said Lloyd O’Carroll, an analyst at Scott & Stringfellow Inc. “The process has not run its course, and it has a lot more to go.�

Meanwhile, Houston-based Kaiser Aluminum Corp., slated to become the continent’s last major independent aluminum maker, could also be bought by a larger rival such as Alcoa or Canada’s Alcan Aluminium, analysts said.

The industry’s latest wave of consolidation began last Tuesday, when Alcan said it might merge with Paris-based rival Pechiney and Zurich-based Algroup. On Wednesday, Alcan agreed to buy Pechiney and Algroup’s aluminum and packaging units for $9.2 billion in stock.

Hours later, Alcoa made public its unsolicited bid for Reynolds to keep its top spot. Ending one of the sector’s busiest weeks of consolidation, Michigan Partners, which has been buying aluminum assets, made its offer Friday.

“This could be the beginning of a radical realignment in the industry,� said Jim Southwood, president of Pittsburgh-based investment advisor Commodity Metals Management Co.