The Aluminum Battlefield

During World War II General Dwight D. Eisenhower planned the North African and Normandy victories in the London office of the British Aluminium Co., Ltd. Last week the same office was the scene of a crushing defeat for British Aluminium in one of the biggest financial fights in the City's history. The victors: Britain's aggressive Tube Investments, Ltd., and Reynolds Metals, No. 2 U.S. aluminum company. Down with the British Aluminium management went Alcoa, No. 1 U.S. producer, which had hoped to get an important foothold in Europe's aluminum market by buying one-third interest in British Aluminium. Also among the casualties: the prestige of Britain's old-school-tie financial community.

The fight for British Aluminium began in 1957, when Reynolds and other U.S. metals interests quietly began buying Aluminium shares. Although the company came out of World War II wjth 3.7% of world aluminum production, timid sales policies had cut its share to .9%. But it had a reputation for quality, plus substantial assets and a promising moneymaker in its new smelter at Baie Comeau, Canada. Last April, apparently afraid that Reynolds or some other aggressive U.S. concern would buy control, Aluminium's chairman, Viscount Portal of Hungerford. got stockholder approval to boost the firm's shares from 9,000,000 to 13,500,000, sell the extra shares for expansion capital. Portal decided that the U.S. company he wanted as a partner was Alcoa. Last October Alcoa offered $8.40 a share (the market price) for the 4,500,000 new shares. Total: $37.8 million.

Counteroffer. Convinced that this was too little, Reynolds sent its General Counsel Joseph H. McConnell, onetime NBC and Colgate-Palmolive president, to London to work out a better counteroffer. McConnell got together with Tube, a moneymaker with interests ranging from bicycles to nucleonics, agreed to set up a new company to buy Aluminium. Tube would hold a 51% interest, so keep the new company nominally British; Reynolds would hold the other 49%. Tube-Reynolds asked Lord Portal to hold up the Alcoa deal, promised to pay his shareholders an "attractive" price, even promised to retain the Portal management.

Instead of investigating the offer to see if it was in the stockholders' interest, Portal signed a secret deal with Alcoa. He assured Alcoa that the only remaining problem--getting British Treasury approval of a deal involving a nonresident company--was certain to be decided favorably in a few days.

Tube-Reynolds brought the fight out into the open by calling in the press to explain its attractive offer. For two shares of Aluminium the new group would pay $10.92 in cash, plus a share of Tube stock worth $11.62--an average of $11.27 vthe $8.40 offer from Alcoa. To a hurriedly called press conference, Lord Portal lamely explained that he had ignored the much higher Tube-Reynolds offer because an Alcoa deal was in the "longterm interests of the company." But he conceded that his real fear was that the "Reynolds family," led by Reynolds President Richard Reynolds Jr., would get day-to-day control of British Aluminium.

To try to win support from the 17,000 Aluminium shareholders. Portal promised a sizable dividend boost. In a final desperate gesture, Portal called in 14 leading old-line British banks, who claimed to control 2,000,000 of Aluminium's 9,000,000 shares, to help in buying more shares. The banks said they would pay $11.48 a share for one-half of each stockholder's holdings if he would keep the rest three months, i.e., until the fight was over. This only made stockholders madder, since it showed that the original price to Alcoa had been much too low.

Counterattack. Then Reynolds struck the final blow. It went into the open market for all Aluminium shares that stockholders wanted to sell. The market rose to $11.90. At week's end Reynolds held directly nearly one-half of all shares outstanding, had even picked up 260,000 shares that the Church of England's Commissioners, who handle the church's investments, unloaded at a profit of about $1,000,000. Reynolds' investment: around $40 million. In addition. Tube and Reynolds upped their stock-swap offer to $12.32, got enough additional stock to raise their total holdings to 80%.

As London's City predicted that the Treasury would quickly approve the Tube-Reynolds takeover, Alcoa in Pittsburgh tersely gave notice that it had "no further interest" in the matter. Privately, Alcoa officials fumed that the Aluminium management had led them down the garden path by airily assuring Alcoa that Treasury approval was routine. The worst of it was that once Alcoa had signed the $8.40 agreement, it could not go into the market and offer more without making the $8.40 look bad. To top off Alcoa's unhappiness, its chief competitor had a major European affiliate; Alcoa had none.

Surveying the battlefield, British Aluminium Director William J. Thomas said ruefully: "We were sitting ducks." Said a spokesman for the winners: "If you asked me what mistake they made, I'd reply in one word: arrogance. Their kind applauds the rules and practices of capitalism only when it suits them."

This file is automatically generated by a robot program, so reader's discretion is required.