Aluminum giant Alcoa (NYSE:AA) announced on Feb. 12 that it was selling its holdings of iron ore company Rio Tinto (NYSE:RTP)to Chinalco for about $1 billion, nearly $700 million more than the current value of the holdings. And speculation has begun to surface that Chinalco will make a play for Alcoa, one of the world's largest producers of aluminum. Shares of Alcoa have plunged from a 52-week high of $44.77 to lows in the $7 range. Analysts on Wall Street are buzzing about the prospect. They should save their breath. First, Alcoa's management has long been against selling out, and take-out arbitrageurs got burned before on this same argument. Further, Chinese companies have been burned so bady by taking stakes in U.S. companies that any buyout is extremely difficult. Lastly, a buyout of Alcoa would face massive political hurdles. Aluminum is a key national asset, used for aerospace and military products, among many others. Washington was already wary of China's expanding grasp for resources in the energy field. In the key materials sector, it's likely that Washington will be equally wary. A deal like this would quickly turn out into a nasty political football Look for continued distress in aluminum markets as aerospace continues to implode.
Alex Salkever is the Director of Research of Piqqem.com, an online stock research and voting tool that harnesses the "wisdom of crowds" to better predict stock prices.
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