The worst mining deal ever: Rio Tinto buying Alcan for $38.1B

Tom Albanese, the former CEO at Rio Tinto, is out but Wall Street Journal (paywall) looked back to revisit what one principal called “the worst decision ever”: Rio Tinto buying Alcan for 38.1 billion in 2007.

In 2007 Rio Tinto’s new CEO Albanese got a bidding war with Vale and Alcoa and ended up paying a 65% premium for Alcan.

Dick Evans, former CEO of Alcan, says in the WSJ that the decision to buy was the “. . . worst decisions ever, the largest metals and mining transaction in the history of the world at the high point in the commodity cycle.”

What made the decision so bad?

  • Rio Tinto (ASX, LON, NYSE:RIO) bought at the peak of the aluminum cycle.
  • Rio Tinto got into a bidding war for Alcan.
  • China entered the aluminum industry in a big way, flooding the market with cheap metal.
  • The financial crisis was right around the corner, a great time to have cash on hand but Rio Tinto was now tapped. The company was now focussed on managing debt rather than making deals.
  • The deal hampered Rio Tinto’s ability to make subsequent purchases.

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Creative Commons image from Stewart Black