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Aluminum Mega-Mergers

A big bang struck the aluminum industry on Wednesday as two announced mega-merger deals rumbled through the market.

The first came as Canada's Alcoa Aluminum Ltd. (AL), France's Pechiney and Switzerland's Algroup said they had agreed to merge in a deal aimed at knocking Alcoa Inc. to the side as the world's biggest aluminum company.

Not missing a beat, Alcoa (AA) emerged hours later with a deal of its own - a hostile $5.6 billion stock offer for Reynolds Metals Co. (RLM).

Commodities companies have come under extreme pressure to cut costs and consolidate around the world, especially in the aluminum industry, where prices lost 50 percent starting in March, before rebounding 25 percent.

Analysts say companies such as Alcoa want to move fast, while prices are relatively stable and the going is good. Analysts were already saying the three-way intercontinental deal would force further consolidation in the industry - a forecast born out by Alcoa's swift response Wednesday.

Montreal-based Alcan (AL), already the world's second-largest producer, is effectively buying the two European metals companies for a total of $9.2 billion in stock.

It's offering 1.7816 Alcan shares for each Pechiney A share an 20.6291 Alcan shares for each Algroup share. Pechiney will also pay its shareholders a special dividend of $550 million, or $6.77 a share, if the deal goes through.

Once the merger is complete, Alcan shareholders will hold 44 percent of the company, while Pechiney will own 29 percent and Algroup 27 percent. Algroup will also sell off its specialty chemicals and energy businesses to shareholders before the merger is completed.

Pechiney shares surged 5.1 euros or 10 percent to 56.10 euros, while Algroup fell 16 Swiss francs to 1,794.

Shares of Pittsburgh-based Alcoa were down 5/8 to 65 3/4, while shares of Reynolds, based in Richmond, Va., were up 7/8 to 56 3/4 in morning trading.

Written By Suzanne Miller, CBS MarketWatch

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