Alcoa proposes special terms to CITIC Group to smooth the $4 billion Alumina Ltd. deal

In a strategic manoeuvre to secure Alumina Ltd.'s $4 billion buyout, American aluminium giant Alcoa has tailored a unique arrangement for the company's second-largest shareholder, China's CITIC Group. As reported by the Australian business-focused, compact daily newspaper Australian Financial Review, this move aims to garner CITIC's backing while adhering to US banking regulations.

Sources indicate that the modifications were crafted in collaboration with CITIC to safeguard the group's position if the shareholder vote favours the takeover. As of now, CITIC has yet to officially decide whether it will retain its stake in Alumina Ltd. or sell its shares in exchange for Alcoa stock.

Alcoa's all-stock offer for Alumina Ltd. now includes an additional provision: issuing non-voting convertible shares equivalent to 1.5 per cent of Alcoa's outstanding stock to CITIC Group. This adjustment ensures compliance with the US Bank Holding Company Act, which limits CITIC's ownership to no more than 5 per cent of any class of voting shares in a US public company. The shareholder vote on this offer is planned for the third quarter of this year.

Alcoa has already garnered the support of Alumina Ltd.'s largest shareholder, Allan Gray, who endorses and believes in the revised terms, as per the Financial Review report.

Allan Gray's Managing Director, Simon Mawhinney, described the deal as an "important transaction" and dismissed rumours that the amendments were preferential terms for CITIC—Allan Gray Australia Pty Ltd, currently the largest substantial holder in Alumina Limited.

"It's not a special deal but rather a practical solution to a regulatory issue," he clarified. "In fact, considering that some of their shares will be non-voting, CITIC is actually getting a less favourable deal compared to other shareholders."

When announced in February, Alcoa's all-stock offer for Alumina was initially valued at $3.3 billion. However, following a surge in aluminium prices, the deal's value has now exceeded $4 billion. Simon Mawhinney described the deal as an "important transaction" and dismissed rumours that the amendments were preferential terms for CITIC.

"It's not a special deal but rather a practical solution to a regulatory issue," he clarified. "Considering that some of their shares will be non-voting, CITIC is getting a less favourable deal compared to other shareholders."

When announced in February, Alcoa's all-stock offer for Alumina was initially valued at $3.3 billion. However, following a surge in aluminium prices, the deal's value has now exceeded $4 billion.

“The agreed change to the Scheme brings us a step closer to completing the transaction, which will provide significant and long-term benefits to both Alcoa and Alumina Limited shareholders,” said William F. Oplinger, President and CEO of Alcoa.