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Alcan + Pechiney

Invest With Confidence

 

October 2003

 

©2003 ALCAN  INC.

 

 

 

Alcan has filed with the Securities and Exchange Commission (“SEC”) a registration statement to register the Alcan Common Shares to be issued in the proposed U.S. offer, including related tender/exchange offer materials, and such registration statement has become effective. Investors and Pechiney securityholders are urged to read the registration statement and related tender/exchange offer materials and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they contain important information. Investors and Pechiney securityholders may obtain a free copy of the registration statement and related tender/exchange offer materials and other relevant documents at the SEC’s Internet web site at www.sec.gov, and the transaction-related documents will be mailed to Pechiney securityholders. Additional copies of the transaction-related documents (when available) may be obtained at Alcan’s expense by contacting the Information Agent for the offers, D.F. King & Co., Inc, toll-free at 1-800-488-8035 (North America), 0-800-90-2614 (France), 0-800-389-7892 (U.K.) or (44) 20-7920-9700 (collect in Europe).

This communication is for informational purposes only. It shall not constitute an offer to purchase or buy or the solicitation of an offer to sell or exchange any securities of Pechiney, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. The solicitation of offers to buy Alcan Common Shares will only be made pursuant to a prospectus and related materials that Alcan sends to Pechiney security holders. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

FORWARD-LOOKING STATEMENTS

Certain statements made in this communication are forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. Although Alcan’s management believes that the expectations reflected in such forward-looking statements are reasonable, readers are cautioned that these forward-looking statements by their nature involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Many factors could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including those listed under “Cautionary Statement Concerning Forward-Looking Statements “ and “Risk Factors” in the preliminary prospectus included in the registration statement we intend to file with the SEC. See the previous paragraph for information about how you can obtain a free copy of the registration statement.

 

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IMPORTANT ADDITIONAL INFORMATION

This presentation includes certain information concerning Pechiney and the combined business of Alcan and Pechiney. This information is subject to risks and uncertainties. We have based this information on publicly available information about Pechiney (primarily filings by Pechiney with the SEC and the French Commission des opérations de bourse). However, Pechiney has not yet granted Alcan access to Pechiney’s books and records or any other non-public information regarding Pechiney and Alcan has no means of compelling such access. In addition, Pechiney’s primary financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in France while Alcan’s primary financial statements are prepared in accordance with Canadian GAAP. There are differences between Canadian and French GAAP. The unaudited pro forma information included herein is prepared based on the US GAAP information that Pechiney discloses publicly. Alcan has not been in a position to verify the Pechiney information or the pro forma information about the combined entity included in this presentation. Some of the information about Pechiney in this presentation is based on good faith estimates by Alcan or industry sources that may be materially inaccurate. The pro forma information presented is not necessarily indicative of the operating results or financial condition that would have been achieved had Alcan’s offer for Pechiney been completed during the periods or at the times presented, nor is this information necessarily indicative of future results or conditions of Alcan after it has acquired Pechiney. The pro forma information does not reflect the impact of synergies that Alcan expects to realize over time or the costs associated with the integration of operations necessary to achieve such synergies nor does it reflect the impact of significant divestitures that Alcan must make as required by antitrust regulators. Some of the risks associated with the information about Pechiney and the combined Alcan and Pechiney will be discussed under “Risk Factors” in the preliminary prospectus included in the registration statement that we have filed with the SEC in connection with the proposed offer.

Certain terms used in this presentation are defined in the appendix.

 

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Alcan + Pechiney

Invest With Confidence

 

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Alcan at a Glance

Overview

Worldwide Leader

Key Facts

Key Attributes

Second largest aluminum company Diversified business mix
$12.3 billion revenues* Low cost operations
54,000 employees Attractive growth platforms
42 countries Strong financial performance
6 business segments Robust earnings capacity

* Fiscal year 2002

One Governing Objective – Maximize Value

 

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Alcan at a Glance

Global Presence

Geographic Balance

 

2002 Alcan Capital Assets
($12.9 Billion)		 2002 Alcan Revenues
($12.3 Billion)
 

2002 Western World Al Consumption (28.5 Mt)

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Alcan at a Glance

Strong Financial Performance

Delivering Despite Weak Economic Conditions

 

 

Revenues and Aluminum Volumes

Sales & operating rev. (US$M)   Total aluminum volume (kt)

 

Operating Income (1)

 Operating income (US$M)       LME (US$/t)

 

(1) Operating income: calculated by substracting foreign currency balance sheet translation effects and Other Specified Items from Net Income

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Alcan at a Glance

Strong Financial Performance

Demonstrated Financial Discipline

 

Cash Flow (in US$M)

Free Cash Flow (US$M)        Cash from Operations (US$M)

 

Debt as a Percent of Total Capital

$10,000


$8,000


$6,000


$4,000


$2,000


$0

Borrowings (US$M)         Debt:Total Capital     Equity (US$M)

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 Alcan at a Glance

Q3 2003 Highlights*

Strong Cash Flow Underscores Business Performance

 

Earnings

Cash Flow

Maximizing Value Initiatives Continue

* For additional information about Q3 2003, see press release dated October 23, 2003 and Form 8-K of same date.

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Alcan at a Glance

Financial Targets

Long Term Objective:  Double Value Every Five Years

  

 

 

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Strategic Rationale

Compelling Strategic Rationale

Creates Substantial Value for Shareholders

  
  • Consistent with strategy & value-maximizing objectives
     
  • Solidifies Alcan as a world-leading aluminum company
     
  • Broad technology leadership -core smelting technology
     
  • Enhanced aluminum fabrication portfolio, e.g. aerospace
     
  • US$6 billion packaging leader
     
  • Accretive to EPS, free cash flow, ROCE from Year 1
     
  • Timing is right
     
  • Substantial future options created

 

 

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Strategic Rationale

US$250 Million Annual Pre-Tax Cost Synergies

Synergies are Realistic and Achievable

  

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Strategic Rationale

Competition Review

Clearance by MTF and DOJ Received

European Commission (MTF)

US Department of Justice (DOJ)
Divestiture of either

Divestiture of Pechiney's aluminum rolling mill located in Ravenswood (West Virginia)

Alcan's 50% share in the AluNorf(1) mill and the Göttingen and Nachterstedt mills

The statutory waiting period under  the US Hart-Scott Rodino Act  expired on September 29.

Pechiney's mills at Neuf-Brisach(1), Rugles and, at purchaser’s option, Annecy

  
Continue licensing of alumina refining technology and aluminum smelter cell technology  
Divestiture of anode baking furnace designs  
Elimination of the overlap in aluminum aerosol cans and aluminum cartridges  

Total commitments amount to approximately 5% of pro-forma sales

(1) Alcan's Latchford casting operations can also be added to either the AluNorf or Neuf-Brisach packages at the purchaser’s option.

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Strategic Rationale

Government Review

Clearance by French Treasury Department Received

 

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Strategic Rationale

Integration Approach

Lessons Learned from algroup

  

 

Demonstrated track record in synergies

 

 

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The Combined Company

Global Group - Balanced Presence

 

 

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The Combined Company

Diversified Business Mix

Balanced Portfolio

2002 Revenue

 Alcan: US$12.3 Bn

 

 

Pechiney: US$11.4 Bn(1),(2)

 

 

Pro Forma: US$23.7 Bn(1),(2)

27%

 
(1) Including Pechiney trading revenue of US$4.8 billion

(2) On the basis of average US$/€ exchange rate during 2002 of .95

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The Combined Company

Increased Core Market Presence

Strengthens Current Position

2002 Revenue By End-Use Market(1)(2)

 
Alcan Pechiney

Pro Forma

(1) Excludes Pechiney trading revenues of US$4.8 billion

(2) On the basis of average US$/€ exchange rate during 2002 of .95

Source: Pechiney figures are based on estimates derived from publicly available documents

 

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The Combined Company

Leading Position in Aluminum

A Leader in Primary Aluminum and Rolled Products

 

Primary

– Bauxite and alumina

– Aluminum smelting

Rolled and fabricated products

(1) Source : CRU (Industry and Market Outdoor, January 2003)

 

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The Combined Company

A Packaging Leader

Strength Across Key End-Use Markets

 

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The Combined Company

Technological Excellence

Cutting-Edge Capabilities

Alcan Pechiney Together
Alumina refining

Smelter - Cell efficiency

Automotive

Rolling

Packaging

Composites

Alumina refining

Smelter - High amperage
cell (AP-30, AP-50)

Aerospace

Packaging

Strong technological base

Sharing best practices &
know-how

More efficient investments

 

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The Combined Company

Customer Benefits

Meets Customers' Need for Full-Service Suppliers
Enhanced Scale and Regional Diversity

 

  

Aluminum Packaging
Diversified low-cost primary position

Increased R&D and technological capabilities

Capacity and reach to address
expanding aluminum fabrication
needs in any region

Aerospace capability

 Leading full-service supplier in most segments

Global reach

Integrated solutions

 

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Transaction Review

Summary of Terms

An Attractive Premium

Consideration €47.5 per Pechiney share(1)
€83.4 per OCEANE
Offer Structure For each Pechiney share:
     €24.6 in cash plus
Alcan shares equivalent to €22.9, based on the
average value pricing formula
          Maximum number of Alcan shares: 0.8358
          Minimum number of Alcan shares: 0.6001
Substitution Option Option to substitute an equivalent amount of cash for all
or part of the stock component
Bonus Additional €1 in cash if more than 95% of Pechiney
capital and voting rights on a fully diluted basis are
tendered
€0.4 bonus per OCEANE
Minimum Condition More than 50% shares tendered

 

(1) If Alcan’s average value is between €27.40 and €38.16 as explained under “Pricing”.

 

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Transaction Review

Pricing

A Fixed-Price Mechanism, with Potential Upside

Value of the Offer for 1 Pechiney share

(Excluding share for cash substitution option)                                                            Alcan Average Value (€)

 

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Transaction Review

Pricing

Value-Protecting Structure

 
  • Offer value fixed at €47.5 even if Alcan stock price in € decreases, down to a value of €27.4, contrary to usual fixed parity mixed offers
     
  • Pechiney shareholders retain upside potential on Alcan stock
     
  • Greater transparency and certainty for Pechiney shareholders:
     
    • Average value of Alcan stock based on 10 trading days among 30 days
       
    • Determination of the stock component consideration 5 trading days before the end of the offer period

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Transaction Review

Remaining Transaction Milestones

Alcan Committed to Successful Process

  Main Steps Time Period
  Initial Offer filed July 7
  Pechiney Board recommends revised Offer September 12
  Revised Offer filed September 15
  Approval decision ("Avis de recevabilité") by the Conseil des
 Marchés Financiers (CMF)

Receipt of competitive/anti-trust clearances in EU, US and Canada

 September 29
  Launch of the Offer in France October 7
  Launch of the Offer in US October 27
     
Subject
to CMF
decision		 Alcan to announce final terms of Offer November 17
Closing of the Offer November 24
Publication of the Results of the Offer December 1

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Summary

Alcan: Committed to Maximizing Value

Invest With Confidence

  • Creates industry leader
     
  • Provides strong base for further value-creating opportunities
     
  • Supports financial targets
     
  • Enables potential for re-rating
     
  • Leverages track record

 

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Appendix

 

 

 

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Western World Aluminum Balance

Primary Metal

(kt)

  2001 2002 2003f
Production 16,670 17,230 17,730
FSU/China/E. Europe 2,700 2,750   3,150
SUPPLY 19,370 19,980     20,880
% Change -1.9% +3.1% +4.5%
DEMAND 18,920 19,570 20,490
% Change -6.2% +3.4%       +4.7%
INVENTORY CHANGE +450 +410 +390
 

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Aluminum – Primary

Bauxite & Alumina

2002 Alumina Production

 

kt
 
  • Further 20% of Queensland
     
  • Integrate complementary bauxite mines and alumina refineries
     
  • Optimize technologyof the two companies

 

Source: CRU (Industry and Market Outlook, January 2003)

 

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Aluminum - Primary

Aluminum Smelting

2002 Production as % of Global


16%
14%
12%
10%
8%
6%
4%
2%
0%

             Alcoa   Pro forma Alcan  RusAI     Alcan       VAW       Billiton     Pechiney    Chinalco   Comalco
  • Largest share of low-cost smelting capacity in the world
     
    • 50% in bottom third of global cost curve
       
  • Advanced high-amperage smelting technology (AP30 & AP-50 cell)
     
  • Alcan’s wholly owned hydroelectric power

(1) Adjusted to include Alouette for full year
Source: CRU (Industry and Market Outlook, January 2003)

 

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Aluminum – Rolled & Fabricated Products

2002 Pro Forma Revenues by End Market

World class aluminum rolling and
continuous casting technologies

Application of best manufacturing
practices

Improved service
of the growing demand
for automotive applications
in both North America
and Europe

Synergy potential

 

 

 

Source: Pechiney figures based on estimates derived from publicly available documents.

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Definitions

EVA® is a registered trademark of Stern Stewart & Co. and a key measure of financial performance. The term means the difference between the return on capital and the cost for using the capital over the same period.

Foreign currency balance sheet translation means gains and losses arising from translating balance sheet items mainly in Canada and Australia (principally accounts payable, deferred credits and other liabilities, and deferred income taxes) at period-end exchange rates.

Free Cash Flow is calculated by substracting dividends and capital expenditures from cash from operating activities.

Operating Income is calculated by substracting foreign currency balance sheet translation effects and Other Specified Items from net Income.

Other Specified Items include, for example: restructuring charges; asset impairment charges; unusual environmental charges; gains and losses on non-routine sales of assets, businesses or investments; gains and losses from legal claims; gains and losses on the redemption of debt; income tax adjustments related to prior years and the effects of changes in income tax rates; and other items that do not typify normal business activities.

ROCE (return on capital employed) is earnings before interest and tax divided by capital, which is equal to Total Capital.

Total Capital is the sum of short-term borrowings, debt maturing within one year, debt not maturing within one year, minority interest, redeemable non-retractable preference shares and common shareholders’ equity.

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©2003 ALCAN  INC.

 

 

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