Thursday, February 9, 2012

Rio Tinto takes a $9 billion hit on Alcan

Rio Tinto announced its results for the year, the numbers were good, except for one tiny little problem.  They also took a write down on Alcan.  Rio bought Alcan at insane valuation in 2007 (just before the crisis), the figure if memory serves was $100 per share.  No other buyer could come up with a figure near that (rumours are that Alcoa was near $85).  So the company that Rio bought for $44 billion in 2007 is now worth slightly more than $36 billion.  BTW its not like Rio has been standing on its hands in terms of investments into Alcan.

On the bright side the CEO has agreed not take a bonus this year... 

Looking at the stock (up nearly 25% since mid December), shareholders seem largely unconcerned.  Granted that in the greater scheme of things $9 billion is peanuts, still its nice to see reality come knocking.  This was a bad deal, it is hard to say what will be the long term impact to Alcan going forward (in terms of capital allocation).   One thing for sure, Rio is selling aluminum assets -- $ 8 billion was "planned" in October -- my bet is more is to come...

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