Alcoasaid after markets closed Thursday that it has withdrawn its $29 billion offer for Alcan in light of Rio Tinto's agreement to purchase the Canadian aluminum company for $38 billion.
"Rio's offer for Alcan strongly reinforces our view of the underlying value in the aluminum industry and its bright prospects for the future," said Alcoa Chairman and Chief Executive Officer Alain Belda.
"However, at this price level, we have more attractive options for delivering additional value to shareholders."
Rio Tinto said Thursday it will offer about $38 billion in cash for Alcan, with support of the Alcan board, trumping a hostile offer from Alcoa.
Alcan CEO Dick Evans would run the merged company, to be called Rio Tinto Alcan. The deal would create the world's largest aluminium producer.
Rio Tinto offered $101 a share for Alcan, a 12.7% premium over Alcan's closing price on Wednesday. It also plans to sell Alcan's packaging division once the deal goes through, forecasting cost savings of about $600 million a year.
Rio Tinto is offering a "compelling price" and expects its offer will be the winning bid, Rio Tinto Finance Director Guy Elliott told "Worldwide Exchange."
"(Alcan) is a very high-quality company, absolutely in keeping with Rio Tinto's strategy, which is to focus on high-quality assets with long lives ahead of the them and obtaining value for our shareholders and I'm quite convinced that this offer is going to win that prize and do all of those things," Elliott said.
The merger will be fully financed by debt, but the sale of Alcan's packaging unit and a further review of the combined company would help pay down liabilities, he added.