Alcoa Stock Slides After $2.2 Billion Takeover Offer for Alumina—Key Price Levels to Watch

Alcoa Corporation

Shares in Alcoa (AA) lost ground in premarket trading Monday after the aluminum producer made a $2.2 billion all-stock offer to buy its Australian joint-venture partner Alumina (AWCMY) in a bid to expand its global mining footprint and consolidate its operations.

Under the terms of the proposed transaction, which was announced Sunday, Alcoa is offering 0.02854 of its stock for each Alumina share, representing a 13% premium to Alumina’s Friday closing price of 1.02 Australian dollars ($0.67). If the deal succeeds, Alumina shareholders will take a 31% stake in the combined entity with Alcoa shareholders retaining the remainder.

The Pittsburgh-based aluminum maker said that taking over its smaller partner, which has 40% ownership of Alcoa World Alumina & Chemicals (AWAC)—the companies’ refining and smelting joint venture with operations in Australia, Brazil, Spain, Saudi Arabia, and Guinea—would allow it realize cost synergies, make faster decisions and bolster its investment in bauxite mining and alumina refining.

“We believe now is the right time to consolidate ownership in AWAC and look forward to working closely with the Alumina Limited team to consummate a transaction that will better position Alcoa to execute on our long-term growth strategy,” Alcoa CEO Bill Oplinger said in a statement.

Melbourne-based Alumina said that its board backed the takeover offer, but cautioned there was no certainty the proposal would succeed. Alcoa flagged that it has reached an agreement with fund manager Allan Gray Australia to purchase its sizeable 19.9% stake in Alumina, potentially helping the deal get over the line.

The takeover proposal comes at a difficult time for the aluminum industry, which faces challenges from China’s slower-than-expected economic recovery and uncertainty surrounding the global macroeconomic outlook. In January, Alcoa announced that it will halt production at AWAC’s unprofitable Kwinana alumina refinery in Western Australia due to challenging market conditions and the facility’s aging infrastructure.

Although the 50-day moving average sits positioned below the 200-day moving average to indicate AA shares remain in a downtrend, the price has traded mostly sideways since late October. A horizontal line connecting a series of price action over the past nine months may provide overhead resistance around $34.50, while the stock’s 2023 low at $23.07 could act as a key support level.

Alcoa shares were down 3.7% at $25.54 about three hours before Monday’s opening bell.

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As of the date this article was written, the author does not own any of the above securities.