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Alcoa, Reynolds OK Merger

After rejecting an earlier offer as too low, Reynolds agreed to be bought for $4.4 billion in stock by its larger rival Alcoa in a deal that fends off a hostile takeover.

Alcoa (AA) is acquiring all outstanding shares of Richmond, Vir.-based Reynolds (RLM) in a stock swap. Under the terms of the agreement, Reynolds stockholders will get 1.06 shares of Alcoa common stock for each of their shares.

The deal values Reynolds at $70.89 a share, a 4 percent premium over its closing price Wednesday.

Alcoa had vowed to take an earlier offer directly to shareholders after Reynolds brushed them off.

The deal would create an aluminum giant to rival Canada's Alcan Aluminum, which plans to merge with France's Pechiney and Switzerland's Alusuisse Lonza Group.

Alcoa first offered to pay $65 cash for each up to half of Reynolds shares. The new deal is an all stock transaction with no cash.

Both packages call for Alcoa to assume $1.5 billion in Reynolds debt.

Alcoa and Reynolds have about $20.5 billion in annualized revenue, while the other three had combined 1998 revenues of $21.6 billion.

Alcoa expects that the transaction will be accretive to Alcoa's earnings per share in the first year following completion of the deal.

The merger would create a company with annual sales of $20.5 billion, about 120,000 employees and operations in more than 300 locations in 36 countries. Analysts say a combined Alcoa and Reynolds would control more than one-sixth of the world's aluminum production.

The merger of the two industry giants could face a tough antitrust review, but Alcoa and Reynolds said they hope the takeover will be completed by year's end. Reynolds' shareholders also must approve the deal.

Written By Steve Gelsi, CBS MarketWatch

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