Alcoa's Bid for Alcan (B)

In spring 2007, Alcoa CEO Alain Belda was concerned about the company's market position in light of increased competition from developing markets. China's recent entry into the aluminum market was affecting both supply and demand. Furthermore, downstream and upstream product was coming on-line from other parts of the world, including Russia. As a result, Alcoa had lost its historical market dominance and stock premium. Belda was convinced that for Alcoa to regain its leadership position, the company would have to increase efficiencies by expanding its scale, diversification and reach. The acquisition of a large competitor presented the best opportunity to achieve this goal and, as a result, he was particularly intrigued by Canadian rival, Alcan, because its assets would complement Alcoa's portfolio and enhance its reach. Further, Alcan had sold off non-aluminum assets, essentially making it a pure play in aluminum. That and its access to relatively cheap Canadian hydro power made it an even more intriguing acquisition opportunity for Alcoa. However, another major competitor, Rio Tinto, was also interested in Alcan; the company was in play.