Rusal-Sual Could Form Global Aluminum Leader as Metals Industry Merge Mania Continues

---

Researched by Industrial Info Resources (Sugar Land, Texas). The global steel and nickel merger road shows have been rolling for a few months and are now being joined by the aluminum mega-mergers. Straws in the wind early in 2006, flying kites and off the record remarks from industry sources kept suggesting to industrialinfo.com that the aluminum industry was soon to see a major merger or mergers, and at the time these predictions were sourced from the businesses in North America. These were soon followed by pointers to Russia. The Russians started to make ‘reasonable’ denials of any reality in rumors of a merger between OAO Rusal (Moscow) and Sual (Moscow).

Now, in the last days of August, the Russian press has quoted unnamed Sual connections as confirming that a MoU (memorandum of understanding) has been signed between Rusal and Sual with the go ahead from President Putin, which would mean that the proposed merge should not be confronted with obstacles by Moscow’s antitrust regulators. It has also been mooted that the Russian state might take a stake in the merged entity, which could, like a golden share, serve as defense against legal claims from the past and predators in the future. There are a number of claimants against Rusal lurking around following a decade of bruising wheeling and dealing and consolidation in the industry.

The merge would not only create a primary aluminum production monopoly in Russia, but would see the interests of two major Russian egos coming together with Oleg Deripaska (personal fortune $10 billion) of Rusal joining hands with Viktor Vekselberg (personal fortune $7.8 billion) of Sual. In fact, the first token of cooperation happened in April 2005 when the companies agreed to exploit the major alumina resource at Komi in northwest Russia together.

In 2005, Rusal produced 2.7 million tons of primary aluminum and Sual 1.05 million tons per annum (mtpa), which when combined, would outstrip the combined global output of 3.5 mtpa of Alcoa (NYSE:AA ) (New York) and Alcan (NYSE:AL ) (Montreal, Quebec). The cohesion and sheer bulk of the new entity would give the Russians major clout, in terms of price, in the world aluminum market, which in 2005 produced a total of about 25 million tons of primary aluminum and 35 million tons, if secondary (scrap and recycle) sourced metal is added in. Alcoa Russia has two plants in Russia fabricating and manufacturing for the consumer goods market. These are the only two plants in the country not owned by either Rusal or Sual.

The value of the new company, which could operate from Rusal’s existing platform or take on a new identity, is put at a high of $22 billion and a low of $15 billion, and market reports suggest that Deripaska will take 75% with Vekselberg and Sual associates taking 25%. Currently, Rusal and Sual are ranked No. 1 and No. 2 of unlisted aluminum companies globally.

The combination of the two company’s assets would create a better balance between alumina production and smelting/aluminum production capacity and the improved operating margins could open a clearer path to the development of new plant projects internationally and strategic acquisitions. The critical mass of the new company would fulfill the wishes of Russian industry and the Kremlin to hunt globally with leading industrial sector packs.

Sual formed a U.K.-based subsidiary in August with a view to a London stock flotation and has worked with Western merchant banks. Sual was also reported to be looking for a foreign partner so that the flotation would release cash so that Vekselberg could give more attention to interests in TNK-BP and chemical industry assets. It is more than possible that Alcoa, Alcan, and Hydro Aluminum are checking the contact possibilities in an industry that has seen a degree of common purpose in the past. The final mechanics of the Russian merge could leave openings for cross-industry cooperation on projects.

Meanwhile in the metals merger road show, the market is serious about the likelihood and desirability of a break up of Anglo American (NYSE:AAL ) (London, United Kingdom) with Xstrata (NYSE:XTL ) (Zug, Switzerland), Rio Tinto (NYSE:RTP ) (London, United Kingdom), and CVRD (NYSE:RIO ) (Rio de Janeiro, Brazil) and said to be interested in feeding time if a break up of the mining monolith takes place, with a potential of $80 billion of mining assets being put onto the market.

In a sector where maximizing returns from assets in the ground, while the market stays hot, is the name of the game, no icon or institution is sacred. Think horizontal, think vertical and try not to hyperventilate.

View Project Report - 81000124

Industrial Info Resources (IIR) is a Marketing Information Service company that has been doing business for over 23 years. IIR is respected as the leader in providing comprehensive market intelligence pertaining to the industrial processing, heavy manufacturing, and energy-related industries throughout the world.