March 15, 2024 | Industrials | Asia | Active

Alumina / Alcoa: Deal Insight

Following the announcement on 26-Feb-24 that disclosed the initiation of a transaction process and an exclusivity deed, US aluminium manufacturer Alcoa agreed to acquire its Australian joint venture partner, Alumina, in an all-stock scheme of arrangement on 12-Mar-24. Pursuant to a scheme implementation deed (SID), the agreed 0.02854 merger ratio equates to AUD 1.15 per share, a 13.1% takeover premium to Alumina’s undisturbed share price. The SID permits Alcoa to declare ordinary dividends of up to $0.10 per share per quarter (note that Alumina is not permitted to pay a dividend, and has not paid one since 2022). Alumina’s board recommends that its shareholders vote in favour of the deal in the absence of any superior proposal, and also subject to a fairness opinion from an independent expert. The exchange ratio will result in Alumina shareholders owning 31.6% of the combined company, while Alcoa shareholders will own the remaining 68.4%. Additionally, two new mutually agreed-upon Australian directors from the Alumina board will join Alcoa’s board upon scheme effectiveness. Regulatory conditions to closing include those from Australia’s Federal Investment Review Board (FIRB), the Australian Competition and Consumer Commission (ACCC), and the Brazilian Administrative Council for Economic Defence (CADE). Additionally, the deal is subject to confirmation of an Australian Tax Office (ATO) class ruling for scrip-for-scrip rollover relief. Approval from both sets of shareholders is also required – 50% of shareholders and 75% of votes at Alumina, and 50% majority at Alcoa; Allan Gray, which holds 19.9% of Alumina, has agreed to conditionally sell its stake to Alcoa to support the scheme. The SID encompasses customary deal protections, including no-shop, no-talk, and no-due diligence provisions, along with a matching right for Alcoa if a competing proposal emerges. The termination fee is set at $22m, with an RTF of $50m. Alcoa shares offered to Alumina holders will be issued in the form of CHESS depository interests (CDIs), representing a unit of beneficial ownership in Alcoa shares. This structure enables Alumina shareholders to trade Alcoa shares via CDIs on the Australian Stock Exchange (ASX). Therefore, to facilitate this, Alcoa will ...

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