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Alcoa to Offer to Acquire Alcan for US$73.25 Per Share in Cash and Stock


US$33 Billion Transaction Will Create a Premier Global Aluminum Company with Enhanced Growth Opportunities

Annual Cost Synergies Expected to be Approximately US$1 Billion

Combined Company Will Have Dual Head Offices in Montreal and New York

MONTREAL & NEW YORK--Alcoa Inc. (NYSE: AA) announced today that it will be making an offer to acquire all of the outstanding common shares of Alcan Inc. (TSX: AL; NYSE: AL) for US$58.60 in cash and 0.4108 of a share of Alcoa common stock for each outstanding common share of Alcan. The transaction will create a premier diversified global aluminum company, with a complementary portfolio of assets and enhanced growth opportunities, and better position the combined company to build value for shareholders. Alcoa expects to begin its offer on Tuesday, May 8, 2007.

Based on Alcoa's closing stock price on May 4, 2007, the offer has a value of US$73.25 per Alcan share or approximately US$33 billion in enterprise value. The Alcoa offer represents a 32% premium to Alcan's average closing price on the NYSE over the last 30 trading days and a 20% premium to Alcan's closing price on May 4, 2007, its all-time high.

Commenting on the offer, Alain J.P. Belda, Chairman and Chief Executive Officer of Alcoa, stated: "This offer follows almost two years of discussions between our companies regarding a variety of potential business combination transactions, including unsuccessful Board-level discussions of a merger transaction last fall. We are very disappointed that those efforts did not result in a negotiated transaction - a conclusion we would have strongly preferred. We believe firmly in the compelling strategic rationale behind the combination of Alcoa and Alcan and are convinced that this transaction creates substantial value for both sets of shareholders and for our customers around the world. We are therefore taking our offer directly to Alcan shareholders."

The combination of Alcoa and Alcan creates a stronger, more diverse global competitor with the scale and cost structure to be competitive over the long term within a rapidly changing industry landscape. Alcoa and Alcan will bring together a complementary portfolio of businesses and benefit from a broader talent base, enhanced research and development expertise, and shared values. The combined company will also have a better balance of growth projects. Together, Alcoa and Alcan will be better able to prioritize and execute on key expansion and modernization projects, and maximize performance improvement opportunities from sharing best practices and leveraging procurement.

The combined company will have increased financial resources to fund innovative research and development projects intended to reduce emissions of greenhouse gases, improve the efficiency of the smelting process, and pursue new technologies designed to facilitate low cost aluminum production.

Mr. Belda said, "The combination of Alcoa and Alcan will significantly deepen an already extensive commitment by both companies to Canada, and it will ensure that Canada remains a world leader in the mining and metals industry. The new company will have dual head offices in Montréal and New York, with strategic management functions located in each city. Montréal also will become the headquarters for our global primary products business, which will increase the size and importance of the global business headquartered in Canada."

Shareholder Value Creation

The combined company will have a significantly enhanced financial profile. Alcoa expects the combination to generate pre-tax cost synergies of approximately US$1 billion annually once fully implemented in the third year following closing. Key sources of synergies include operational improvements in the areas of smelting and refining, overhead improvements such as sales and general administrative expense and plant costs, and procurement. The transaction is expected to be accretive to both cash flow per share and earnings per share within the first year of operation as a combined company. The combined company will generate substantial free cash flow that will enable it to rapidly reduce acquisition-related debt, while continuing to invest in growth opportunities.

On an aggregate basis for 2006, the combined company would have had revenues of US$54 billion and EBITDA of US$9.5 billion, before synergies. In 2006, the combined company's alumina capacity would have been approximately 21.5 million tonnes and its aluminum capacity would have been approximately 7.8 million tonnes. In addition, the combined company would have approximately 188,000 employees in 67 countries.

"Alcoa has completed a number of large acquisitions in recent years and we have a proven track record of successfully integrating companies to generate shareholder value. We also have a history of excellent relations with employees in transitional situations and look forward to creating a 'best in class' management team drawing on the strengths of both companies," continued Mr. Belda.

Increased Commitment to Growth and Investment in Canada

Mr. Belda said, "Alcoa generated more than US$3.0 billion in revenues last year through its Canadian operations and employs more than 5,000 people in Canada, primarily in Québec. Our desire to expand our existing Canadian operations is a matter of public record and the combination of the two companies will facilitate that goal."

Alcoa is committed to growing the combined company's already substantial presence in Canada, particularly in Québec and British Columbia. Specifically, as a result of the opportunities provided by the combination of the two companies, Alcoa intends to transfer to Montréal a number of strategic head office functions. Montréal will also become the combined company's global headquarters for primary products (bauxite, energy, alumina and aluminum), as well as for related research and development. As a stand-alone company, the primary products business would be the largest aluminum company in the world and larger than Alcan is today, with US$32 billion in 2006 revenues and approximately 38,000 employees in 29 countries around the world, ranking among the largest businesses in Canada.

Alcoa also intends to promote new investment and greater opportunities for growth of the combined business through the responsible development of Canada's industrial base. In particular, Alcoa expects to conclude negotiations with the government of Québec that will allow it to implement the two companies' planned investments of approximately US$5 billion, including modernizations and expansions, making it the single largest private sector investment program in Québec's history. In British Columbia, Alcoa is committed to working with the government of British Columbia and local communities to move forward with Alcan's planned modernization of the Kitimat smelter.

Mr. Belda continued, "Alcoa will honor Alcan's commitments to the governments of Québec and British Columbia, and the combined company will continue to pursue excellence in environmental, safety, health and technology leadership - areas in which both our companies have achieved international and local recognition. In addition, Alcan and Alcoa have a strong tradition of commitment to local communities and we will continue that tradition as a combined company."

Alcoa has applied to list its common shares on the Toronto Stock Exchange, in addition to maintaining its listings on the New York Stock Exchange and exchanges in Australia, the United Kingdom and the other foreign exchanges on which Alcoa currently trades.

Competition Clearance

The transaction is subject to review by antitrust authorities in various jurisdictions including the U.S., Canada, the European Union, Australia and Brazil. It also requires foreign investment clearance in Canada, France and Australia.

"With the changing dynamics of our industry over the past decade, we firmly believe that a combination of the two companies will enhance our future competitiveness against increasingly formidable competitors from around the world. During our discussions with Alcan last fall, we explored the regulatory implications of a combination of the two companies and our ability to address any potential issues a regulator might raise. We believe that any antitrust issues raised by an Alcoa-Alcan combination can be solved through targeted divestitures and by proactively working with regulators to address competitive concerns. We plan to move expeditiously to address these issues in order to close this transaction at the earliest possible date," said Mr. Belda.

Alcoa is targeting completion of the transaction by the end of 2007.

Details of the Offer

The complete terms, conditions and other details of the offer are set forth in the offering documents that Alcoa expects to file today with the U.S. Securities and Exchange Commission and with Canadian securities regulatory authorities.

The offer and withdrawal rights are scheduled to expire at 5:00 p.m., Eastern Daylight Saving Time on July 10, 2007, subject to extension. The offer will be subject to a number of customary conditions, including there having been tendered in the offer at least 66 2/3% of Alcan's common shares on a fully diluted basis, receipt of all applicable regulatory approvals, and the absence of material adverse effects.

Alcoa has received a commitment letter from Citi, Goldman Sachs Credit Partners L.P. and Goldman Sachs Canada Credit Partners Co. to fully finance the proposed transaction. Skadden, Arps, Slate, Meagher & Flom LLP, Stikeman Elliott LLP, and Cleary Gottlieb Steen and Hamilton LLP are acting as legal counsel to Alcoa. Citi, Goldman, Sachs & Co., BMO Capital Markets, and Lehman Brothers are acting as financial advisors.

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