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

18/05/07 Alcoa Inc. announced that it will be making an offer to acquire all of the outstanding common shares of Alcan Inc. 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.

Following is a copy of the letter Alcoa sent to Alcan this morning with respect to its offer:

May 7, 2007
Mr. Richard B. Evans
President and Chief Executive Officer
Alcan Inc.

1188 Sherbrooke Street West
Montreal, Quebec H3A 3G2
Canada

Dear Dick:

Last fall we worked together to reach a mutually acceptable merger transaction, and I am disappointed our conversations did not lead to an Alcoa-Alcan combination. The significant financial benefits of that combination, together with the rapidly changing competitive profile of our increasingly global industry, made it compelling that we explore such a transaction. I would have preferred to pursue a negotiated transaction, and continue to feel strongly about the merits of a combination. I have reviewed with my Board the proposed transaction, and it has authorized me to take our offer directly to your shareholders.

We are announcing that we will be making an offer to acquire all of the outstanding common shares of Alcan Inc., for US$58.60 in cash and 0.4108 of a share of Alcoa common stock for each outstanding common share of Alcan. Based on Alcoa’s closing stock price on Friday, May 4, 2007, the offer has a value of US$73.25 per Alcan share or approximately $33 billion in enterprise value. Our 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. We expect to formally commence our offer tomorrow, and I am enclosing a copy of the press release announcing that offer.

Let me briefly reiterate the compelling strategic rationale for the combination which we discussed:

* The combination of our two companies will create a global company with the scale and cost-structure to be competitive in the primary aluminum business, aluminum fabricating, and related and diversified businesses.

* Our combined company will have a larger capital base and increased combined cash flow that will enable it to invest to meet future significant increases in demand for aluminum products throughout the world.

* Our combined company will have substantially lower costs, which will contribute to its 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.

* Our combined company will employ Alcoa's and Alcan's superior existing technological and project management capabilities to modernize and develop new facilities in an enhanced cost effective manner.

I expect the combination to generate pre-tax annual cost synergies of approximately US$1 billion once fully implemented in the third year after closing, and I expect the transaction to be accretive to both cash flow and EPS within the first year of operations as a combined company.

You are aware of our significant commitment to Canada, which I emphasized in our discussions last year. Following completion of this combination, we intend to expand that commitment with more investment, a stronger R&D presence, new jobs and more value creation. We will maintain dual headquarters in Montréal and New York, and locate strategic corporate leaders in both cities. We also plan to have significant Canadian representation on the new company’s Board. Montréal will become home to the largest aluminum company in the world, because it will be the global headquarters for the combined company’s primary metals, bauxite, and alumina operations, with more than US$32 billion in annual revenue. We will also move our primary metals research and development to Québec, and pilot our post-carbon technology at a smelter in the province. I do not believe any other company can make such a significant commitment to Montréal, Canada and Québec.

During our discussions with you 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. At that time, we both believed that any antitrust issues raised by an Alcoa-Alcan combination could be solved through targeted divestitures and by working with regulators to address competitive concerns. We have already engaged some regulators on a preliminary basis and plan to move expeditiously to address these issues in order to close this transaction at the earliest possible date.

As we have discussed, putting our two companies together is both strategically and financially compelling. We are a natural partner for Alcan, and we have a long history of welcoming and successfully integrating our acquisition partners and their employees. Our proposal represents significant immediate value to your shareholders, as well as the opportunity to participate in the future upside potential of the combined company.

I know that you and your Board will consider what’s best for your company and its employees. In doing so, I hope you will also consider the uncertainty that will be created by a protracted contest and recognize that Alcoa and Alcan are the best partners to better compete in the industry today.

For those reasons, we have not decided on this course of action lightly. I would have preferred our previous negotiations to have reached a successful conclusion; however, given our prior experience, I did not see an option other than to present this combination directly to your shareholders.

It is my hope that you will examine our offer with the same logic and openness that prevailed in the meetings that took place last fall with you, Yves Fortier, Frank Thomas and me.

With best regards,

Alain

Enclosure

Analyst/Investor Conference Call/Webcast

Alcoa will be discussing the proposed transaction with analysts and investors on a conference call at 9:00 a.m. EDT today. The conference call can be accessed by dialing (888) 321-3075 (U.S. dial-in) or (973) 582-2855 (Canadian and international dial-in), conference code 8769323. Accompanying slides will be available on the Alcoa website at www.alcoa.com. The company will also webcast the call to all interested parties on its website. Please see the website for details on how to access the webcast.

A replay of the conference call will be available and can be accessed in the U.S. by dialing (877) 519-4471, conference code 8769323. Canadian and international callers can access the replay by dialing (973) 341-3080, conference code 8769323. The webcast will also be archived on the Alcoa website, www.alcoa.com

Press Conference

Alcoa’s Chairman and CEO, Alain Belda will host a presentation to the media today, May 7, 2007 at 11:30 a.m. EDT, at the Omni Hotel, Pierre-de-Coubertin Room, 1050 Sherbrooke West, Montreal, Québec. The company will webcast the press conference to all interested parties through its website, www.alcoa.com. A live broadcast feed of the press conference will be available on Monday, May 7, 2007 between 11:30 a.m. and 12:30 p.m. EDT. The replay will be available from 2:00 p.m. to 3:00 p.m. EDT.

All broadcasters have PEGAD Contact:

Bell TOC Montreal Canada.
514- 870-3789
Toll free North America: 1-800-361-7113
Feed C4268-34878
Press conference: ALCOA.

CEO Interview

An interview with Alain J.P. Belda, Chairman and CEO of Alcoa, is available in English and French on Alcoa’s website, www.alcoa.com, in video, audio and text forms. Broadcast footage will shortly be available on www.thenewsmarket.com