Credit Suisse said it also raised its price targets on aluminum companies Alcoa Inc.
The brokerage, in a research note, raised its price target on Alcoa to $42 from $35.
Credit Suisse said it also raised its price targets on aluminum companies Alcoa Inc.
The brokerage, in a research note, raised its price target on Alcoa to $42 from $35.
BARRON'S
By Tom Sullivan
If Australia's BHP Billiton or Britain's Rio Tinto hopes to buy Alcoa, the
American aluminum giant, as was rumored last week, they might have to pay a lot
more than $40 billion -- the price tag attached to the rumors. Sure, that tab
would represent a 33% premium to Alcoa's current $30 billion market value, but
it doesn't begin to reflect the turnaround afoot at the Dow industrials
component.
Barron's has been a fan of Pittsburgh-based Alcoa for some time (see "Alcoa's
Shiny Prospects," Aug. 8, 2005, and "Pricing Outlook Bright for Alcoa," Jan.
22, 2007). Yet the stock, for all its gyrations, did little from the date of
our first story, when it traded at 28, until this January. Indeed, Alcoa (AA)
has returned just 4%, dividends included, in the past five years, compared with
North American rival Alcan's (AL) total return of 65%.
Tuesday, Alcoa jumped as much as 10%, to 36.05, on takeover speculation, but
ended the week around 34.50, suggesting Wall Street sees no deal in the offing.
That would suit John Buckingham, manager of the Al Frank Fund (ticker: VALUX),
fine. "The ship is sailing the right course," he says, "but this is not the
time to be selling the company."
Buckingham, whose firm owns 162,000 Alcoa shares, understands why BHP and Rio
Tinto might be interested in a deal, especially at a bargain price. After all,
he says, "the ugly duckling is now a swan." But he views a bid of $55 a share,
or about $48 billion, as a much fairer price for Alcoa holders. Alcoa has
dismissed the takeover talk, while BHP and Rio Tinto didn't comment.
An acquisition of Alcoa would help both BHP (BHP), which calls itself the
world's largest diversified-resources company, and Rio Tinto, an international
mining concern, consolidate their positions in the aluminum industry. Aluminum
has underperformed other metals, in part because China produces 30% of the
world's supply. But the market has found support from commercial construction
and the transportation/aerospace sectors, CreditSights said in a recent report.
Investors in Alcoa, which makes Reynolds Wrap, Dura-Bright car wheels and
Spout Pouch beverage containers, as well as aluminum for industrial uses, can
expect to benefit. The company is likely to earn $3.03 a share this year,
compared with last year's $2.96. Alcoa trades for 11.4 times '07 estimates and
yields 2%.
In January, Alcoa announced plans to buy back up to 10% of its shares, in
part via debt. That prompted credit-rating agency Standard & Poor's to lower
its rating on Alcoa to triple-B-plus -- two notches below the rating the
company's debt received from rival Moody's Investors Service.
Yet the yield margins, or spreads, on Alcoa's bonds narrowed a bit in active
trading after the takeover reports surfaced; the company's 5.95% bonds due 2037
narrowed by three basis points (a basis point is 100th of a percentage point)
to 106 basis points over Treasuries with comparable maturities. That's despite
talk that the deal might be done as a leveraged buyout.
"It's a doable deal," says Eric Tutterow, managing director at Fitch Ratings,
implying Alcoa is not too large to be swallowed. "With a name like that . . .
there would be a lot of support in the high-yield and leveraged-loan markets."
A $40 billion acquisition would trump last year's record $39 billion buyout
of Arcelor by the Netherlands' Mittal Steel (MT). But Alcoa shareholders could
be counting even more millions before any deal is done.
| MarketWatch 3:42 p.m. 02/07/2007 By Frank Barnako Something's happening here. Apple Inc.'s computer-meister is plotting something big. Really big. Like ... maybe ... new Beatles tracks we haven't heard ... which will be sold through iTunes and will not be protected by digital rights technology. |
| There was much speculation Apple (AAPL) would use last month's MacWorld to announce the addition of Beatles music to iTunes. Instead, Steve Jobs held up an iPhone, loaded with Beatles tunes, while Beatles graphics and music play onstage. Presumably the tracks came from his CD collection. (Yeah, right!) |
| Apple Recon has also reported there will be some sort of Apple "event" on Feb. 20. This has not been confirmed by the company. (In an earlier version of this post, I said the company had formally scheduled an announcement for the end of the month. I was wrong.) There is lots more speculation about Apple and that date here. |