Potential takeover bids of Alcoa by one of two Australian-based companies reportedly considering such a move were unlikely because of the U.S. aluminum producer's company dynamics, cost factors and increasing Chinese competition, analysts said Wednesday.
BHP Billiton, the world's largest mining company, and Rio Tinto, the world's second-largest iron ore producer, declined to comment on the takeover talk, sparked Tuesday by an unsourced report in the Times newspaper of London.
The report said the Melbourne-based mining companies were considering offers of up to $40 billion bid for the U.S. aluminum giant. Alcoa shares rose 6.38% to close at $35 Tuesday on the New York Stock Exchange after rising as high as $36.05 earlier in the session.
"We don't comment on market rumors and speculation," said Ian Head, a spokesman for Rio Tinto.
Analysts said they doubted a bid was pending, noting that BHP or Rio Tinto are focused more on the mining and raw materials end of the business than "downstream" industries like the manufacture of aerospace equipment and auto parts, which Alcoa emphasizes.
"I think the downstream assets make it all too hard to be honest -- I don't put any credence in these rumors," said Morgan Stanley analyst Craig Campbell.
BHP Billiton shares rose 0.8% to 28.79 Australian dollars ($22.44) in trading Wednesday in Australia, while Rio Tinto gained 2.3% to A$77.20 ($60.18).
Stock Resource analyst Steve Bartrop said BHP's existing Australian aluminum assets could see the miner face antitrust issues if it made a bid for Alcoa, based in Pittsburgh, Pennsylvania.
Bartrop said there is little benefit for BHP in investing in Alcoa's U.S. aluminum smelting operations when it has its own low cost operations in Mozambique, South Africa and Brazil.
"It doesn't make much sense to buy higher cost smelters in the U.S. even with the proximity to market," he said.
Analysts at the U.K-based independent investment banking and brokering group, Numis, said the miners may have considered Alcoa in the past, but that such a bid was now doubtful.
"We are not convinced the value case relative to other options (organic, buybacks or other mergers and acquisitions) will be easy to make and, on balance, believe it is unlikely," it said in a statement.
Global investment bank UBS said both miners have the cash and flexibility to launch a takeover, but that the "timing could be questionable," with China providing increasing competition in aluminum production.
Meanwhile, Australia's Alumina said Wednesday it is not aware of any information about a possible takeover of U.S.-based partner Alcoa. Alumina owns 40% of the Alcoa World Alumina and Chemicals joint venture in which Alcoa holds the remaining controlling stake.
Alumina's shares shot up 5.9% Tuesday on the takeover speculation, and rose another 1.52% Wednesday to A$7.34 ($5.72)
"We are not aware of any information with respect to the recent press speculation concerning a possible takeover of Alcoa by either Rio Tinto or BHP Billiton and the possible implications for the company resulting from that takeover," Alumina said in response to a share price query from the Australian Stock Exchange.