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Alcoa fires $5.6-billion offer for Reynolds

The company counters three foreign aluminum rivals who just hours earlier agreed to a deal that would vault them to the top spot.

Alcoa Inc., the world's largest aluminum company, went public with an offer to buy No. 3 Reynolds Metals Co. for $5.6-billion in cash and stock just hours after three foreign aluminum rivals announced a deal that would catapult them to the No. 1 ranking.

Alcoa and Reynolds would have a combined revenue of about $21-billion, rivaling the new marriage of Alusuisse-Lonza (Algroup) of Switzerland, Pechiney of France and Alcan Aluminium of Canada, which have combined revenue of $21.6-billion.

A combination of Alcoa and Reynolds would unite companies that make the basic building blocks for products ranging from automobiles, appliances and airplanes to beer and soft-drink cans. In disclosing the offer Wednesday, Alcoa said it had been pursuing Reynolds since March 22 and was trying to get its rival to negotiate a deal. It asked for an answer by Monday or it would consider other options for closing a deal, presumably including taking a hostile offer directly to Reynolds' shareholders.

Reynolds, based in Richmond, Va., said in a terse statement that its board would consider the offer Sunday and that it would have no further comment until after the close of business Monday. But shareholders were betting on a bigger bid, sending Reynolds shares above the $65-a-share offer from Alcoa, in part because some analysts have a significantly higher value for Reynolds.

While this merger flurry is big news on Wall Street, it is unlikely to have much impact on the consumers who buy Reynolds Wrap and other aluminum foils, or the automotive companies designing ever-more aluminum into their cars.

Even if the mergers result in fewer aluminum producers, aluminum itself is a basic commodity that is in in ample supply throughout the world.

"Neither of these mergers, assuming they go through, will have any impact on aluminum prices, or even on aluminum supply," said Leanne Baker, the metals analyst at Salomon Smith Barney.

The deal may yet run into antitrust opposition. In December 1997, the Justice Department sued to prevent Alcoa from purchasing some of Reynolds' assets in Alabama, saying the purchase would result in higher prices. A day later, the companies abandoned the deal.

Still, analysts expect this proposal would survive regulatory scrutiny. In fact, some analysts suggested that the advent of two such big deals may help each one go through because the Justice Department is likely to look more favorably on a strengthened Alcoa, while the European Union will want a bigger presence in the industry.

The flurry of activity in the rather staid aluminum industry was not surprising in a world that is increasingly made up of megacompanies in such industries as oil and automobiles, said Ilker Baybars, senior deputy dean at the Carnegie Mellon Graduate Business School in Pittsburgh.

Such combinations are aimed at keeping the surviving companies competitive by cutting costs, through reducing the work force, and in improving productivity. No plans for job cuts were announced by Alcoa.

The combination of Alcan and the Swiss and French aluminum makers is coming about because "they're really nervous about losing their share to the U.S. in global markets," Baybars said. He said Pittsburgh-based Alcoa simply wants to hold on to its No. 1 position.

"If they acquire Reynolds, they will maintain that," Baybars said.

Alcoa first approached Reynolds in March but made its offer public Wednesday in a "Dear Jerry" letter to Reynolds' chief executive, Jeremiah J. Sheehan, from Alcoa's CEO, Alain J.P. Belda. The unusual tactic came just as analysts were absorbing the announcement of a three-way deal joining Alcoa's European rivals in a pact that would have placed the trio as an undisputed world leader in aluminum.

Alcoa offered $65 in cash for about half of Reynolds' shares and the equivalent value in Alcoa shares for the rest of the stock. Belda indicated a willingness to negotiate an all-stock deal.

The $65 offer represented a 16 percent premium over Reynolds' closing price Tuesday.

By the time trading ended Wednesday on the New York Stock Exchange, Reynolds was up 16.8 percent, or by $9.37{, at $65.25 a share as one of the most active issues.

Alcoa spokeswoman Bonita Cersosimo said the company would not discuss anything beyond its news release.

"We just have to wait to see how this process unfolds," she said. "Above all else we want this to be a friendly negotiation."

Alcoa finished the day up $2.93} at $69.37{ a share on the NYSE.

_ Information from New York Times was used in this report.