Alcoa's offer to Reynolds Metals consisted of $4.3 billion in cash plus the assumption of $1.5 billion in Reynolds' outstanding debt.  Alcoa's offer letter, which it made public, from its chief executive to the Reynolds' CEO indicated that it wanted to pursue a friendly deal but that it would pursue a hostile bid if the two sides could not begin discussions within a week. Reynolds appeared to be highly vulnerable because of its ongoing poor financial performance and because of its weak takeover defenses. 

     Despite pressure from institutional shareholders, the Reynolds' board rejected Alcoa's bid as inadequate.  Alcoa's response was to say that it would make a formal offer directly to the Reynolds' shareholders and simultaneously solicit shareholder support for replacing the Reynolds' board and dismantling Reynolds' takeover defenses. Reynolds capitulated within two weeks from receipt of the initial solicitation and agreed to be acquired by Alcoa. The agreement contained a thirty-day window during which Reynolds could entertain other bids.  However, if Reynolds should choose to go with another offer, it would have to pay Alcoa a $100 million break-up fee.

 

1.What was the dollar value of the purchase price Alcoa offered to pay for Reynolds?2.Speculate as to why Alcoa wanted to pursue initially a friendly rather than hostile approach?

3.    Describe the various takeover tactics Alcoa employed (or threatened) in its successful takeover of

       Reynolds.  Speculate as to why these tactics may have been employed (or threatened) by Alcoa?

4.    Why did the Reynolds' board reject the initial offer only to accept the bid two weeks later?

5.    What is the purpose of the breakup fee?