Aluminum makers may merge

MONTREAL Alcan Aluminium Ltd. of Canada, France's Pechiney SA andSwitzerland's Algroup said today they may combine to form a companythat would surpass Alcoa Inc. as the world's biggest aluminum maker.

The companies would have about 100,000 workers and $20 billion inrevenue from aluminum smelting, packaging and chemicals, overtakingAlcoa, which had about $15 billion in sales last year. A combinationwould allow them to boost profit by cutting costs as aluminum pricesbegin to recover from the five-year low reached in March.

Industrial companies worldwide - auto-parts makers, oil refinersand electric utilities - are merging because the inability to raiseprices leaves cost cutting as the surest way to shore up earnings.The same pressures now have Alcan, Pechiney and Algroup moving toaccelerate consolidation in the aluminum industry through an unusualthree-country merger.

"What we're seeing here isn't limited to aluminum manufacturers,"said ABN Amro analyst Vahid Fathi. "Producers, by and large, have nocontrol whatsoever over the price of the products that they supply tomarket."

Montreal-based Alcan, the No. 2 aluminum maker, said last monththat second-quarter profit fell 42 percent because of lower pricesfor the metal, used in cars, airplanes, cans and constructionmaterials.

Pechiney owns Chicago-based American National Can, and recentlycompleted a $510 million stock offering for 54.5 percent of thecompany.

To save money, Alcan could eliminate overlapping sales andmarketing jobs with Pechiney in Latin America, Asia and Europeoverlap, said St. James Securities analyst Ray Goldie.

Any combination of aluminum makers from three countries could bescuttled by executive squabbles and cultural differences, which couldhamper integration, said Washington antitrust attorney KeithShugarman.

"Cultural issues are always the biggest problem in the integrationof companies in cross-border transactions, let alone a three-countrydeal," said Shugarman, of Goodwin, Procter & Hoar. "Companies arepeople, too, underneath that corporate shell."

Any merger would also be closely scrutinized by U.S. and Canadianregulators, who may order the companies to sell some operations,Shugarman said. The U.S. Justice Department, which would likelyreview the transaction, declined to comment, said spokeswomanJennifer Rose.

A combined Pechiney-Alcan-Algroup would produce about 2.6 millionmetric tons of aluminum a year, or about 10 percent of global supply,overtaking Alcoa, which now produces 2.5 million tons.