Rio Tinto'schief executive said Friday the $38.1 billion the mining giant is offering to buy Alcan is not too much, citing skyrocketing demand for metals in China and India.
The massive deal, which spurred gains on U.S., British and Australian markets when it was announced Thursday, will create the world's largest aluminum company, and ended U.S. rival Alcoa's hostile bid for the Canadian company.
Alcoa withdrew its offer for Alcan after Rio Tinto and Alcan said they had reached agreement on a cash-only deal of $101-per-share - about one-third more than Alcoa was bidding.
Analysts said the huge price tag was designed to knock Alcoa out of the fight, though some said it may be too much.
Rio Tinto chief executive Tom Albanese disagreed.
"We're very comfortable with the fact that we've found the right balance between the compelling offer for Alcan shareholders and an offer that's consistent with our approach to value," Albanese told Australian Broadcasting in an interview broadcast Friday.
The deal would put the Anglo-Australian diversified miner in a better position to capitalize on the rampant growth in China and India.
"We have seen China's demand for steel, copper and aluminum ramping up in recent years," he said.
Resources stocks drove Wall Street and London markets higher overnight, and the Australian bourse surged when it resumed trading for the first time since the Rio Tinto-Alcan announcement. But Rio Tinto shares lost almost 3% before recovering some ground to 102.46 Australian dollars around midday.
Rio Tinto's friendly takeover offer exceeds a $28 billion offer from Alcoa that Alcan's board roundly rejected in May.Alcoa Withdraws
Announcing Alcoa was withdrawing its bid, Chairman and Chief Executive Alain Belda said Rio Tinto's offer "strongly reinforces our view of the underlying value in the aluminum industry and its bright prospects for the future."
"However, at this price level, we have more attractive options for delivering additional value to shareholders," he said in a statement issued shortly after the close of trading Thursday.
Rio Tinto's offer is 65.5% more than Alcan's closing share price before Alcoa's May 4 takeover bid, and almost 33% more than Alcoa's offer, Rio Tinto and Alcan said in a joint statement.
The offer is subject to conditions including gaining the support of 66.67% of Alcan's shareholders and a break fee of $1.05 billion - payable by Alcan to Rio Tinto if Alcan pulls out.
Under the deal, a new company named Rio Tinto Alcan would be based in Montreal, Canada, that would be "a new global leader in the aluminum industry with large, long life, low cost assets worldwide," the companies said. It would be headed by Alcan Chief Executive Dick Evans.
Alcan Chairman Yves Fortier said Rio Tinto's was "very attractive" and the board recommended it to shareholders. The deal resulted from a "rigorous and thorough process," he said.
Alcoa and Alcan were the world's top two aluminum producers until March, when Alcoa was eclipsed by the Russia-based United Company Rusal.
Rio Tinto already has a major bauxite operation in Australia, as does Alcan, which would give the combined company a powerful hold over one of the key materials in aluminum production.
Rio Tinto, based in London and Melbourne, is currently the world's eighth-largest aluminum maker and second-biggest iron ore producer.