Alcoa wins big as China invests in Rio Tinto

Before you go, we thought you'd like these...
Before you go close icon
Alcoa Inc. (NYSE: AA) caught a huge break in the Rio Tinto deal. It sure can use it.

The Pittsburgh-based aluminum producer agreed to exit a special purpose entity it formed last year with Aluminum Corp. of China, or Chinalco, to buy shares of Rio Tinto. Chinalco, which is investing $19.5 billion in Rio Tinto Plc (NYSE: RTP), will pay $1.02 billion to Alcoa by July.

Dow Jones points out that the stake currently is worth $300 million. Alcoa also will receive a pro-rated portion of Rio Tinto's dividends. The company is close to getting a "junk" credit rating from Standard & Poors, so it can use the cash to bolster its balance sheet. It will record a non-cash after-tax loss of approximately $120 million on the investment in the first quarter of 2009.

"This transaction, combined with our intention to explore opportunities to expand our commercial relationship, strengthens Alcoa's ability to weather the economic downturn," said Alcoa CEO Klaus Kleinfeld in a press release. "When the global economy recovers, the pent-up consumer and industrial demand will create a broad array of opportunities in both developed and developing regions for Chinalco and Alcoa."

Alcoa already has invested $700 million in the Chinese aluminum industry and employs about 1,926 people there, Dow Jones said.

Nonetheless, Investors are clearly not impressed with the deal. Alcoa and Rio Tinto shares are down today.
They have plunged more than 78 percent as Wall Street continued to fret about declining aluminum prices, which are at a six-year low. Alcoa reported its first net loss in six years last month and announced plans to slash 15,000 jobs.

The Chinalco-Rio Tinto deal still needs to be approved by officials in Australia. Media reports indicate that there is some concern there about a Chinese company gaining an 18 percent of Rio Tinto.
Read Full Story

Markets

S&P 500 2,386.75 -2.02 -0.08%
DJIA 20,960.83 -20.50 -0.10%
NASDAQ 6,052.14 3.20 0.05%
DAX 12,444.87 1.08 0.01%
NIKKEI 225 19,196.74 -55.13 -0.29%
HANG SENG 24,615.13 -83.35 -0.34%
USD (per EUR) 1.09 0.00 0.24%
USD (per CHF) 1.00 0.00 0.14%
JPY (per USD) 111.46 0.23 0.21%
GBP (per USD) 1.29 0.00 0.33%

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners

5 Brilliant Logic Puzzles That Gave Our Brains A Crazy Workout 5 Brilliant Logic Puzzles That Gave Our Brains A Crazy Workout
Woman Feels Strange Lumps Under Her Dog's Fur - Then Realizes What Happened In Her Own Woman Feels Strange Lumps Under Her Dog's Fur - Then Realizes What Happened In Her Own
A Special Ed Teacher Had All of Her Students in Her Wedding, and the Pictures are A Special Ed Teacher Had All of Her Students in Her Wedding, and the Pictures are