ANDY HOFFMAN
Globe and Mail Update
November 26, 2007 at 6:30 PM EST
Rio Tinto PLC is aiming to nearly double cost savings from its purchase of Alcan Inc., and has identified an additional $20-billion (U.S.) in assets it may sell to finance the deal, as it tries to fend off an unwanted takeover proposal from industry giant BHP Billiton Ltd.
Britain's Rio has added Alcan's engineered products division to a growing list of assets that have been put on the block to help pay for the $38-billion acquisition.
Tom Albanese, Rio's chief executive officer, went on the offensive Monday in an effort to convince the market that his company's operations and growth potential are significantly undervalued and that BHP's proposed all-stock bid, worth roughly $128-billion, is too low.
"Our board looked at it, and we rejected it. It was rejected on the basis of value. That value equation is what we're talking about today," Mr. Albanese said in an interview.
Rio has also promised to boost its iron ore production, and increase its dividend by 30 per cent.
In what he called a "mea culpa," Mr. Albanese said Rio's habit of "underpromising and overdelivering" when communicating the prospects of its mining projects is out of touch with the current metals boom, that has been driven by soaring demand from China's fast-growing economy.
"We're in a market where there is exceptional demand growth for everything we produce that will continue, I believe, for the next several decades," he said.
This month, BHP of Australia disclosed it had submitted a proposal to Rio's board, offering three of its shares for each Rio share in what, if successful, could prove one of the largest corporate takeovers in history.
Word of the offer came on the same day that Rio completed its $38-billion takeover of Montreal-based Alcan, forming the world's largest aluminum maker.
At the time, Rio had identified $600-million in annual cost savings from the Alcan deal by 2009.
Now it expects to wring $940-million in synergies after expanding the scope of its integration efforts to include Rio's corporate costs and shared services.
Mr. Albanese said he is shooting for more than $1-billion in savings, and has tied part of his annual bonus payment to achieving that target by 2009.
Rio took on $40-billion in debt to finance the friendly all-cash bid, and had said it would sell Alcan's packaging division as well as its own thermal coal operations in the United States to reduce the debt load by $10-billion.
Now Rio has committed to selling at least $15-billion worth of assets, and has identified up to $30-billion worth of properties and business units it could divest.
In addition to the packaging division, Rio is now looking to sell Alcan's engineered products division, which manufactures parts for the aerospace industry, and products such as cables and specialty aluminum extrusions.
Analysts said the division, which was a top performer at Alcan before the sale, could be worth between $3.5-billion and $4-billion.
Dick Evans, CEO of Rio Tinto Alcan, said the company has already received "significant" and "serious" inquiries for the business.
"We think [it] will be very attractive to both strategic buyers and financial buyers. So when you look at the relative value in our portfolio relative to the value in someone else's portfolio, it is one that pops up, because it is easy to see how that would be a king-making strategic deal for someone who is already in that field." Mr. Evans said.
Rio is also considering the sale of its 40-per-cent stake in the Cortez joint venture in Nevada, which contains 11.1 million ounces of proven and probable gold reserves.
Toronto-based Barrick Gold Corp. is the operator and owner of the remaining 60 per cent of the mine and related development projects. Barrick spokesman Vince Borg said his company would be interested in buying the rest of the project, depending on the sale terms.
Barrick has "some preferential rights within the joint venture agreement," Mr. Albanese said.
Other Rio assets up for sale include the Greens Creek zinc, lead and silver mine in Alaska, the Sweetwater Uranium project in the United States and the Kintyre uranium project in Australia.
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