Alcoa stock not foiled by rumors

Amy Scott Feb 13, 2007
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Alcoa stock not foiled by rumors

Amy Scott Feb 13, 2007
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KAI RYSSDAL: Stock number one on this Tuesday is one of 30 companies making up the Dow Jones Industrial Average. It’s also the subject of a serious rumor campaign. Add those two things together…and the Dow’s usually off and running.

Shares in Alcoa were up 7 percent at the opening bell this morning. The jump followed a newspaper report two mining companies wanted to buy the aluminum producer.

One of those companies has denied the report. The other’s not talking. But investors weren’t listening anyway. Marketplace’s Amy Scott takes it from there.


AMY SCOTT: The British paper The Times reported today that two Australian mining companies were each preparing $40 billion bids for Alcoa. They are BHP Billiton and Rio Tinto.

Alcoa looks like an appealing target. Its earnings rose 75 percent last year, thanks in part to the rise in commodity prices. But its stock hasn’t kept pace. That makes it a relatively cheap acquisition.

Industry analyst Chuck Bradford is skeptical. He says neither mining company has expressed interest in the so-called downstream side of the business. That involves making products like the aluminum sheets used in soda cans.

CHUCK BRADFORD: Unless they could find a buyer . . . which is possible . . . for Alcoa’s downstream business, which includes aerospace alloys and a number of other things, I don’t think it’s too likely.

Analyst Scott Burns with Morningstar disagrees. He says he thought the Russian aluminum producer, Russal, might make a move for Alcoa. Partly because of that downstream business.

SCOTT BURNS: Every year over the past 30 years, there’s more aluminum in cars and less steel. There’s more aluminum being used in the beverage and food packaging industry and not less. So I think if anyone were to acquire it, acquiring those contracts and contacts would be one of the big reasons to do so.

Another aluminum deal this week may have fueled speculation about Alcoa. Sunday, the Indian producer Hindalco announced it would buy Canadian company Novelis for $3.5 billion.

In New York, I’m Amy Scott for Marketplace.

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