Shares in Aluminum Corp of China (Chalco) rose to record highs in Hong Kong and Shanghai after it agreed to buy smaller rival Baotou Aluminum for 14.7 billion yuan in stock as part of its strategy to consolidate resources in aluminium production and to expand into the processing business.
Chalco, the mainland's biggest aluminium producer that specialises in refining bauxite into alumina for aluminium production, is offering to buy each Baotou share for 1.48 of its new Shanghai-listed A shares.
The deal values Baotou's shares at 34.15 yuan each, based on Chalco's A-share closing price on June 11, just before trading was suspended. That represents a 28 per cent premium to Baotou's same-day closing price.
Baotou's shareholders also can choose to sell their shares to Chalco for 21.67 yuan each in cash. Chalco's parent Chinalco indirectly owns 55 per cent of Inner Mongolia-based Baotou.
Chalco plans to take Baotou private. Earlier in April, it had completed the same process with two listed subsidiaries, Lanzhou Aluminium and Shandong Aluminium Industry.
'The deal is positive as it would help Chalco expand into the downstream aluminium processing business, giving it a more balanced value chain,' said Helen Wang, a metal analyst at DBS Vickers. She added that the deal would lift Chalco's profit.
Ms Wang said the stock swap valued Baotou at about 22 times forecast earnings this year, in line with other mainland aluminium stocks.