If successful, the bid of $73.25 per share in cash and stock would create the world's largest producer of the metal that is used for products ranging from beverage cans to airplanes, cars and heavy machinery parts.
Alcan said it plans to consider the proposal and advised shareholders to wait until it has fully reviewed the offer. The offer represents a 32% premium to Alcan's average closing price on the New York Stock Exchange over the last 30 trading days.
The combination would rank as the second-largest deal ever within the metal and mining industry, falling behind Mittal Steel's $39.5 billion planned purchase of Arcelor. Freeport-McMoRan's $22.6 billion acquisition of rival Phelps Dodge ranks as the third-largest deal, according to Thomson.
Shares of both companies jumped on the news, with Alcan's stock price rising above the offer price on expectations a higher offer may surface. Alcoa shares climbed to a three-year high.
"I just think that Alcan was perennially undervalued and it was inevitable something like this would happen," said John Redstone, analyst at Desjardins Securities.
An Alcoa-Alcan combination would control about 25% of the alumina raw material and primary aluminum markets and put its production capacity well above that of Russian rival RUSAL.
Given the size of the two North American companies, a deal is expected to draw scrutiny from regulators, and Alcoa said it was prepared to sell off assets to win approval.
Alcoa said its move comes after nearly two years of merger discussions between the companies ended in November and failed to a yield an agreement. It put the enterprise value of the deal at $33 billion, including $6 billion in debt.
"We are very disappointed that those efforts did not result in a negotiated transaction - a conclusion we would have strongly preferred," said Alain Belda, Alcoa chairman and CEO, adding, "therefore we are taking our offer directly to Alcan shareholders."
Alcoa, which is the world's largest aluminum seller in terms of revenues, said the combined company would see finished aluminum production capacity of 7.8 million tonnes compared to RUSAL's 4 million tonnes.
Its alumina capacity, the raw material used for the metal, would be 21.5 million tonnes versus RUSAL's 11 million tonnes of capacity.
The bid of $58.60 in cash and 0.4108 per share of Alcoa common stock would represent a 32% premium to Alcan's average closing price on the New York Stock Exchange over the last 30 trading days.
Asked whether Alcoa was expecting a bidding war for Alcan, Belda said, "We're always prepared."
Earlier this year, Alcoa's shares soared on reports that BHP Billiton Ltd. or Rio Tinto Ltd.
Australian miner BHP Billiton
"It seems like a lot of people were talking about Alcan as a potential takeover. I don't think Alcoa was ever viewed as a likely purchaser just because of the antitrust reasons," said David Whetham, resource fund manager at Scotia Cassels.
Belda told Alcan CEO Richard Evans he was confident they could resolve any regulatory concerns in a letter last year through "targeted divestitures" and by working with regulators to address competitive concerns.
Belda said the company had already spoken to some regulators on a preliminary basis, and he cited the two companies' aerospace businesses as a potential issue.
Analysts said the takeover would probably require the approval from the Quebec government to keep in place a deal that gives Alcan's new Canadian plants access to cheaply produced power from hydro electric generation there.
"It will be very interesting to see how that works out because if you lose that competitive advantage then suddenly the deal doesn't work," said, Gavin Graham, chief investment officer at Guardian Group of Funds.
Alcoa expects a deal between the two companies, which it hopes to complete by the end of the year, would create cost savings of $1 billion per year beginning in the third year after closing and add to cash flow and earnings per share in the first year.
Alcoa said the new company would have dual head offices in New York and Montreal and would have had combined revenues of $54 billion on an aggregate basis in 2006.
Alcoa said Citi, Goldman, Sachs & Co., BMO Capital Markets, and Lehman Brothers were acting as its financial advisers, and Skadden, Arps, Slate, Meagher & Flom LLP, Stikeman Elliott LLP, and Cleary Gottlieb Steen and Hamilton LLP as legal counsel.