Bragging rights are up for bid in the aluminum business.

Just hours after three foreign rivals announced a $9 billion deal to form the world's largest aluminum company, industry leader Alcoa Inc. went public with an offer to buy Richmond-based Reynolds Metals Co. for $5.6 billion in cash and stock.

The rapid-fire consolidation comes as the industry faces depressed prices and mergers of some of its biggest customers. "It's not a surprise at all," said Vahid Fathi, metals and mining analyst at ABN Amro. "Consolidation in the industry is just warming up."

Yesterday, one day after disclosing merger talks, Alcoa's Montreal-based competitor, Alcan Aluminium, said it had inked a deal with Pechiney of France and Algroup of Switzerland, creating a company with combined revenue of $21.6 billion, including $17.4 billion from aluminum sales.

If Alcoa, which said it has been holding discussions with Reynolds since March 22, succeeds in buying the smaller company, the new concern would have revenue of about $21 billion, much of it from the aluminum business, probably allowing it to retain the title of biggest aluminum company.

In a statement, Reynolds said it had scheduled a special meeting of its board of directors on Sunday to consider the Alcoa offer.

In a letter delivered yesterday to Jeremiah J. Sheehan, chief executive of Reynolds Metals, Alcoa chief executive Alain J.P. Belda also offered the option of a pure stock swap, in the ratio of 0.9784 Alcoa shares for every share of Reynolds Metals, instead of a combination of cash and stock.

In either case, Alcoa offered to buy Reynolds at $65 a share, a 16.33 percent premium over Tuesday's close of $55.87 1/2.

Analysts, however, felt the price is low given the target company's assets and that shareholders will likely reject Alcoa's offer. "The bid on the table is the lowest end of our estimate," Fathi said. Wall Street expects Alcoa to ante up anywhere from $68 to $75 a share.

In case Alcoa does not revise its offer, analysts expect a counterbid from a third party. The list of potential suitors includes Alcan itself and $2.25 billion Houston-based Kaiser Aluminum Corp. "I think a counterbid is a possibility," said Georges Lequime, mining analyst at HSBC Securities.

The rationale for consolidation in the industry is compelling. In the past 10 years, there has been a glut in the aluminum market and the recent crash of economies in Asia--which account for 20 percent of aluminum consumption--has only added to the industry woes.

Aluminum prices on the London Metal Exchange have remained flat, gaining only 3 cents per pound in the past five years to quote at about 70 cents per pound today. While an industry consolidation may not in itself spur prices, analysts say it will help companies build much-needed economies of scale and reduce costs of production.

In the letter to Reynolds, Belda said Alcoa believed the merger proposal to be a "strategic opportunity . . . that should be pursued expeditiously" given the global consolidation in the industry.

Though Alcoa first approached Reynolds in March, sources said that there were no significant discussions thereafter and that Belda's letter yesterday was mostly in reaction to Alcan's announcement.

Analysts said Alcoa's bid will most likely attract antitrust scrutiny from the Justice Department. In late 1997, Alcoa was forced to drop its offer to buy one of Reynolds Metals' mills after Justice stepped in to block the deal.

More than a year ago, Alcoa acquired Alumax Inc. in a friendly takeover. Still, the Justice Department forced Alcoa to sell some operations of Alumax.

But a company spokesman said Alcoa "believes the deal will pass regulatory muster."

Alcoa indicated that it may pursue a hostile bid. In his letter, Belda gave Reynolds until Monday to "respond definitively" to the proposal, or else Alcoa "will pursue all other avenues available to achieve a combination of [the] two companies."

If Alcoa is able to pull off the bid, it will achieve its long-stated goal of upping its top line over the $20 billion mark, given Reynolds Metals' revenue of $5.85 billion last year.

The bid is attractive to Alcoa for other reasons as well. Reynolds Metals entered the aluminum packaging business way back in 1926 and today has a strong market presence and brand equity.

Because its packaging business caters to the consumer goods sector, it is less prone to demand fluctuations--a problem with other consumer industries such as auto, construction and aerospace. Therefore, its cash flows are more steady.

In Profile

Reynolds Metals Co.Business: Worldwide manufacturer and distributor of aluminum products, including automotive and construction materials, beverage cans, wrapping foil, and packaging materials.

Founded: 1919

Based: Richmond

Employees: 20,000

1998 revenue: $5.85 billion

1998 earnings: $66.0 million

Web address: www.rmc.com

Yesterday's closing stock price: $65.25, up $9.37 1/2 (ticker RLM on the NYSE)

SOURCES: Reynolds Metals,

Bloomberg News