Alcan's hostile takeover of its French counterpart Pechiney has become a friendly bid following the acceptance of a revised offer for the company by Pechiney's board. But getting regulatory approval may prove harder.
Canada-based Alcan first launched its takeover bid in July, offering €41 per share for Pechiney in a part cash, part shares offer. Pechiney's board reacted angrily to the offer at the time, saying that it was unexpected and unwelcome, although Alcan stressed it had been in on-and-off discussions with the European group for several months.
Pechiney's rejection of the bid now appears to have been little more than a negotiating tactic, as Alcan's latest offer - of €48.50 per share, valuing the company as a whole at €4 billion - has been accepted by the French company's board, which is recommending that shareholders also give it the thumbs up.
The revised offer is conditional on a more than 50 per cent acceptance among Pechiney's shareholders, as well as on approval by the competition authorities in the European Union and in the United States - something which is by no means a given.
An attempt by Alcan, Pechiney and Switzerland's Algroup to merge their European businesses in 2000 was rejected by the European Commission on the grounds that it would reduce competition. Even without the presence of Algroup this time, there are still many reasons for the EC to block the deal, although both parties seem confident that the green light will come from both Brussels and Washington.
Together, the two companies would overtake the US-based Alcoa group as the world's biggest operator in the aluminium and packaging market. Their combined sales would be $24 billion, compared to $20.2 billion for Alcoa. But a pledge from Alcan to sell around 4-5 per cent of the merged assets in order to win approval from the regulators would leave the two companies at roughly the same size, potentially making it easier to win approval.
The business reasons for the merger are clear - in fact, they remain pretty much the same as they were in 1999 when the merger was first mooted - with Pechiney giving Alcan a foothold in the airline and automotive industries and combining both companies' smelting businesses generating considerable economies of scale.
But where the two firms overlap the most is in the packaging sector, with expected combined sales of around $6 billion, and this may be where the disposals will have to come.