Alcoa operates Alcoa World Alumina and Chemicals (AWAC), which encompasses several affiliated entities engaged in bauxite mining and alumina refining
The corporate headquarters for the Alcoa Corporation. (Credit: Tony Webster/ Wikipedia)
Alcoa has disclosed the initiation of an agreement with Alumina, outlining the terms and procedures for the potential acquisition of Alumina. This transaction is contingent upon the execution of a scheme implementation agreement.
Alcoa and Alumina Limited have forged an exclusivity and transaction process deed (referred to as the ‘Process Deed’). Additionally, the Alumina Limited Board of Directors has affirmed that, upon the execution of a scheme implementation agreement, it plans to endorse the transaction to Alumina Limited shareholders. In this all-scrip (all-stock) transaction, Alumina Limited shareholders are proposed to receive 0.02854 Alcoa shares for each Alumina Limited share (designated as the “Agreed Ratio”). As per Alcoa’s closing share price on February 23, 2024, the Agreed Ratio suggests an equity valuation of roughly $2.2bn for Alumina Limited.
The Alumina Limited Board of Directors plans to endorse the Agreed Ratio provided that no superior proposal arises and pending an independent expert’s affirmation (and ongoing affirmation) that the transaction serves the best interests of Alumina Limited shareholders.
Under the Process Deed, Alcoa and Alumina Limited aim to finalise and execute a scheme implementation agreement for the all-scrip transaction. Upon the Agreement’s completion, Alumina Limited shareholders would hold 31.25% ownership, while Alcoa shareholders would possess 68.75% of the combined company.
Alcoa operates Alcoa World Alumina and Chemicals (AWAC) solely, a joint venture (JV) with Alumina. AWAC encompasses several affiliated entities engaged in bauxite mining and alumina refining across Australia, Brazil, Spain, Saudi Arabia, and Guinea. Additionally, AWAC holds a 55% stake in an aluminium smelter located in Victoria, Australia. Alcoa directly or indirectly owns 60%, and Alumina Limited holds 40% of the AWAC entities, respectively.
The agreement seeks to enhance Alcoa’s economic stake in its core operations and streamline governance by acquiring the minority partner in its AWAC JV. This move would afford greater operational agility and strategic flexibility. Furthermore, it would enable Alumina Limited shareholders to partake in the growth potential of a stronger, better-capitalized company boasting a larger and more diversified portfolio, alongside exposure to Alcoa’s upstream aluminium business.
Acquiring Alumina Limited bolsters Alcoa’s core tier-1 bauxite and alumina business while granting Alumina shareholders access to Alcoa’s global aluminium operations. This move consolidates Alcoa’s ownership in one of the world’s largest producers of bauxite and alumina with tier 1 assets, enhancing its stake in significant bauxite mines and alumina refineries worldwide, excluding China.
The merger strengthens Alcoa’s status as the foremost pure-play upstream aluminium company, fostering vertical integration across the value chain. The proposed transaction also enhances Alcoa’s financial flexibility, enabling efficient funding, capital allocation, and liability management.
Under the proposed all-scrip Agreement, Alumina Limited shareholders would receive 0.02854 Alcoa shares for each Alumina Limited share. This equates to a value of A$1.15 per Alumina Limited share.
Additionally, two new directors, mutually agreed upon by both parties, would be appointed to Alcoa’s Board of Directors upon the transaction’s closure.
The completion of the transaction would be contingent upon fulfilling certain customary conditions and obtaining regulatory approvals.