Wmc $7.5b Alumina Play
Sydney Morning Herald
Wednesday July 6, 1994
Western Mining Corp yesterday gave up part of the farm in a $1 billion deal giving it global exposure to the alumina industry via a $7.5 billion merger of assets with The Aluminum Co of America.
WMC shareholders are being called on to help fund the merger through a fully underwritten 1-for-8 rights issue, priced at $5.80 a share. This will raise $720 million, allowing WMC to maintain the strength of its balance sheet and kick in additional working capital for the new joint venture.
Under the deal, WMC will outlay about $500 million and transfer 9 per cent of Alcoa of Australia Ltd to the US company. In exchange, WMC will gain a 40 per cent interest in Alcoa's worldwide bauxite alumina and alumina-based chemical businesses.
These businesses, wrapped up in one enterprise and 60 per cent held by Alcoa, will have total assets in excess of $7.5 billion. WMC owns 49 per cent of Alcoa of Australia, which is managed by the US parent.
WMC's share in alumina production capacity will increase by about one-third to 3.9 million tonnes, representing about 10 per cent of world capacity and it will also gain exposure for the first time to the fast growing alumina-based chemicals industry.
Assets to put into the new enterprise include the whole of Alcoa of Australia, comprising its bauxite, smelting and refining activities and the US parent's bauxite and alumina and chemical operations, stretching around the globe.
WMC managing director Mr Hugh Morgan described the move as a natural development in the relationship between the two companies. This was established in 1961, when Alcoa of Australia was formed to extract value from the massive Queensland bauxite deposits discovered by WMC.
"This transaction really focuses on a resolution by both Western Mining and The Aluminum Company of America to merge the alumina and alumina chemical industries together so that they can provide a worldwide global focus on the business, the expansion of the business and its prospects," Mr Morgan said.
"It will enable Western Mining to participate in this with the world leader outside Australia."
Mr Morgan said the deal would be marginally income negative at current prices if the businesses remained static. However, the merger offered opportunities on several fronts, he said. The chemical business had considerable growth potential and a global approach would open up new market opportunities not available to the bits that currently made up Alcoa.
"The transaction is something both parties have approached with a view to advancing their common interests and we hope that by being able to work together we have designed what we think is the preferred outcome of meeting the needs of both parties."
Mr Morgan said shareholders would benefit from a very firm foundation being laid down for future growth and "aggressive steps being taken to enhance the value of the alumina business with an extension into alumina-based chemicals"
Market reaction was cool. WMC's share price was knocked down 51c to $7.01 because of the call on shareholders' funds and the planned reduction in the holding in Alcoa of Australia from 49 per cent to 40 per cent. In London last night it took another knock, dropping to $6.80 as doubts set in about who was the winner in the deal. A rare endorsement of a commercial deal also came from the Federal Government.
The Minister for Trade, Senator McMullan, hailed the planned $7.5 billion joint venture as "a prime example of an Australian company gaining leverage in an expanding global market".
"It positions WMC extremely well, both globally and in relation to particular markets in the Americas and Asia," Senator McMullan said.
© 1994 Sydney Morning Herald
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