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Alcoa outbid on Reynolds?
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August 13, 1999: 8:11 p.m. ET
Stock rises on speculation of competing bid against Alcoa's $5.6B offer
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NEW YORK (CNNfn) - Alcoa Inc.'s $5.6 billion unsolicited bid for Reynolds Metals Co. took a strange turn Friday when a Chicago-based investment firm announced plans to put forth a superior offer.
McCook Metals LLC, a unit of investment group Michigan Avenue Partners, Friday delivered a letter to Reynolds "expressing an interest in an all-cash acquisition of Reynolds if Reynolds were for sale."
Details of the offer were not available but Michigan Avenue Chairman Michael Lynch told CNNfn his firm is prepared to top Aloca's offer of $65 a share in cash and stock.
The competing offer throws a curve ball in the high-stakes game being played by the world's aluminum producers, who this week began jockeying for top position. The significance of McCook's bid is that it is likely to spur other offers for Reynolds, and turn Alcoa's quest for the company into a battle.
"We are making a friendly offer to Reynolds," Lynch said. "We were shocked when we found out that Alcoa had made its offer and we assembled ourselves as quickly as we could to put together this proposal."
Reynolds declined to comment on the McCook offer. But Alcoa questioned whether the new bid was a true offer.
"We are the only ones to have a bona fide offer on the table for Reynolds to consider," an Alcoa spokeswoman said.
A bidding war
On Wednesday, Alcoa offered the equivalent of $65 a share, or $5.6 billion including assumed debt, for Reynolds (RLM). Alcoa 's (AA) offer was unveiled just hours after Canada's Alcan Aluminium Ltd. (AL), France's Pechiney SA (PY) and Switzerland's Algroup announced their widely expected merger.
Alcan-Pechiney-Algroup -- as it will be known at first - was expected to be the top maker of packaging products and be neck-and-neck with Alcoa, currently the world's biggest aluminum producer. But a merged Alcoa-Reynolds would leapfrog past A-P-A in both aluminum output and market capitalization.
Now it appears a bidding war will erupt over Reynolds, leaving it uncertain who will claim the company and the position of being the world's biggest aluminum producer, analysts said.
Rumors that Reynolds had hired anti-takeover specialists Wasserstein & Perella circulated among analysts, further fueling speculation that Reynolds is girding for a potential bidding war.
"Things just got even more interesting," said Vahid Fathi, an analyst at ABN Amro in Chicago. "I'd now anticipate someone else stepping back in and making another counter offer," he said, adding that Alcoa's $65 a share bid "could probably go a little higher."
Left bewildered
Analysts who follow the aluminum industry were somewhat bewildered by the lack of detail surrounding the competing bid, though many said they were not surprised a second offer landed on Reynold's doorstep.
"Michigan Avenue are serious players in the aluminum industry, but without any details of the bid or the source of the funding it is difficult to evaluate," said Kurt Billick, an analyst with Warburg Dillon Read in San Francisco.
Rumors of the second offer sent shares of Reynolds soaring 3 to 69-3/8, a gain of almost 5 percent from Thursday's close. Details of the counter-offer weren't clarified until late Friday after financial markets had closed.
Reynolds' share price during the past week
Other aluminum makers haven't ruled out making their own rival bids for Reynolds, analysts said.
Getting into aluminum
Swiss aluminum company Alusuisse-Lonza Holding AG has publicly stated that it may be interested in pursuing Reynolds. In addition, because of Reynolds' focus on packaging, "a bid is still open to anybody," Fathi said. "Reynolds' business fits with so many different things, aluminum and packaging, which means somebody totally out of the blue could sweep in," he said.
Reynolds has scheduled a special board meeting Sunday to consider Alcoa's offer.
To be sure, Alcoa has every intention of following through with its takeover of Reynolds.
Still, McCook Metals and Michigan Avenue isn't just another investment fund looking to swoop in and rip apart Reynolds for cash.
In November 1997, Michigan Avenue purchased an aluminum sheet and plate plant from Reynolds, and last year bought an aluminum-rolling mill in Scottsboro, Ala., from Canadian miner Noranda Inc.
"We have had a very good relationship with Reynolds and we know we can make Reynolds profitable," Lynch said.
Michigan Avenue has lending available to it from GE Capital, a unit of General Electric Co. (GE), as well as other financial lenders. The company has also retained Bear Stearns & Co. (BSC) as its financial advisor.
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