Alcoa Shares Hit 6-Year High on Talk of Renewed Takeover Bid

Alcoa's shares jumped nearly 3% to a six-year-high Monday on renewed speculation that mining giant BHP Billiton has revived plans for a $40 billion takeover of the U.S. aluminum company.

Both companies declined to comment, but Wall Street analysts and other mining industry observers were skeptical of the story in London's Times newspaper, which had reported essentially the same thing in February.

The difference now is that Alcoa is in the middle of a hostile takeover battle for Canada's Alcan, which has rejected its U.S. rival's $28.4 billion offer.

Sources familiar with Alcoa's hostile offer for Alcan and the strategies of other mining companies that may mount a bid for either aluminum company said that Alcan was a more likely target.

"If you are going to speculate about who BHP is interested in, Alcan is a far more likely candidate than Alcoa," a person familiar with the matter said. BHP would be unlikely to want Alcoa's smelting operations, but Alcan's bauxite supply would be attractive, the source said.

Another person familiar with the matter said BHP had made a close analysis of Alcoa, but had dropped the idea of acquiring it about six months ago.

A third person familiar with the matter said: "Alcoa has indifferent smelting operations. A miner would only really be interested in the upstream business so there would be no point launching a takeover for the whole company if you only actually wanted about 30 percent."

Alcoa's stock was up $1.20, or 2.9 percent, at $42.80 in afternoon trading on the New York Stock Exchange after rising to $42.87. The last time the shares were so high was in June 2001.

Monday's Times story said BHP Billiton , the world's biggest mining group, had revived plans for a $40 billion takeover of Alcoa. The unsourced report comes prior to Marius Kloppers taking over as BHP's chief executive in October, when Chip Goodyear retires. It was Goodyear who sidelined the initial Alcoa plan, preferring to return cash to shareholders, The Times said.

"This is the same rumor that's been around for six months," said analyst Charles Bradford of Bradford Research/Soleil. "The current story makes very little sense."

In the unsourced report in February, The Times said BHP Billiton and Rio Tinto Ltd. were both considering bids for Pittsburgh-based Alcoa.

Most analysts saw such a scenario as unlikely and said even if there was some truth to the speculation, it would be a thorny deal fraught with operational and regulatory problems.

Most analysts agreed that anyone eyeing Alcoa would most certainly only be interested in its upstream, or mining and smelting, operations, rather than downstream businesses manufacturing products such as kitchen foil.

Indeed, Alcan, which does not have the same type of downstream business as Alcoa, may be a more interesting takeover target for large mining companies looking to increase aluminum operations, sources told Reuters at the time.