RICHMOND, Va. -- Spurned by the board of Reynolds Metals Co., Alcoa Inc. is taking a hostile $4.2 billion takeover bid directly to Reynolds' shareholders.
Alcoa, the world's largest aluminum maker, is offering $65 a share in cash for No. 3 Reynolds -- a takeover aimed at maintaining Alcoa's dominance in a market battered by low prices.
Reynolds board rejected Alcoa's bid as inadequate. Alcoa said Monday that while it would prefer to negotiate a takeover with Reynolds' management, it will begin an all-cash offer to Reynolds' shareholders this week. It also said it will solicit shareholder support for replacing Reynolds' board and dismantling Reynolds' takeover defenses.
The Reynolds board on Sunday unanimously rejected a cash-and-stock offer valued at $65 a share. On Monday, after Alcoa announced its hostile bid, Reynolds advised shareholders to sit tight.
"Alcoa's actions are designed to serve Alcoa's own interest and not the interests of Reynolds Metals' shareholders. Shareholders need take no action at this time," Reynolds said in a terse statement.
The Alcoa bid, and a separate 3-way merger announced last week, are an effort by the companies to increase their competitiveness, partly in response to historically low aluminium prices. Early in the decade, the collapse of the Soviet Union caused a rise in aluminum exports by producers seeking new markets to replace the Soviet military. In recent years, the economic slowdowns in Asia, Russia and Latin America have cut demand.
Analysts estimated Reynolds stock to be worth much more than the Alcoa bid -- roughly $70 to $80 a share.
Alcoa "offered the low-ball bid in hopes getting Reynolds as cheap as possible," said Lloyd O'Carroll, an analyst for the Richmond-based investment firm Scott & Stringfellow Inc.
"My guess is that the low offer is part of their overall strategy, knowing the board would reject it. By going directly to the shareholders, perhaps they are hoping to throw a little fear into the board before talking sweet to them," said O'Carroll, a former chief economist for Richmond-based Reynolds.
Traders began betting on a better offer last week, bidding up the price of Reynolds above Alcoa's offer.
On Monday, Reynolds fell 43 3/4 cents to close at $68.93 3/4 a share on the New York Stock Exchange. That's $3.93 3/4 , or 6.1 percent, more than Alcoa's bid and represents expectations that a takeover will cost at least an additional $254 million.
Alcoa rose 37 1/2 cents to $66.87 1/4 on the NYSE.
Last Wednesday, in announcing the unsolicited bid for Reynolds, Pittsburgh-based Alcoa valued its deal at $5.6 billion, though it did not provide additional details. At $65 a share, the deal would be worth $4.2 billion based on the number of Reynolds shares outstanding.
Alcoa's offer was followed Friday by disclosure of an all-cash bid from Michigan Avenue Partners, a Chicago real estate investment group that entered the metals industry last year with the purchase of a Reynolds plant in McCook, Ill. In the past 18 months, the investment group has purchased about $1 billion in aluminum assets.
Neither Reynolds nor Michigan Avenue Partners disclosed any details of that offer, though Michigan Avenue Partners called its offer superior to Alcoa's.
"Michigan Avenue is a major real estate developer in the Chicago area. They are players," O'Carroll said.
O'Carroll said Michigan Avenue bought the McCook plant for its real estate then found that by cutting costs it could turn a profit.
"Their CEO, Mike Lynch, has said he intends to buy a lot of aluminum and metal assets, and use cost cutting to make them profitable," he said.
Messages left at Michigan Avenue's office were not immediately returned Monday.
In rejecting the bid from Alcoa, the Reynolds board said it would explore "all alternatives to maximize shareholder value, including the sale of the company."
Another potential suitor is Alcan Aluminium Ltd. of Canada, the world's No. 2 aluminum producer, which already in the midst of a merger with French and Swiss competitors that would create a company that would top Alcoa in size.
Alcan's president and chief executive officer, Jacques Bougie, said last week his company wouldn't rule out making a bid for Reynolds.
If Alcan completes its proposed merger with Alusuisse-Lonza Holding (Algroup) of Switzerland and Pechiney S.A. of France it would have combined revenue of $21.6 billion, which would just eclipse the $21 billion in combined revenue of an Alcoa and Reynolds merger.
Alcan stock was down 43 3/4 cents at $34.62 1/2 a share on the NYSE.
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