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June 12, 1998
Alcoa Not Bidding for the Venezuelan Aluminum Industry Assets in Second Offering
PITTSBURGH--June 12, 1998--
Alcoa today advised the Venezuelan government that they are not going to
bid for the Venezuelan aluminum industry assets in this second offering.
Below is the text of a letter from Paul O'Neill, chairman and chief
executive officer of Alcoa, to the Venezuelan government:
June 12, 1998
Mr. Alberto Poletto
Mr. Efraín Carrera
Dear Mr. Poletto and Mr. Carrera:
This is to inform you that the Alcoa has decided that it cannot make a
bid for the Venezuelan Aluminum Companies, because to do so would
violate our fiduciary duty to our shareholders to invest their money in
a responsible way.
We have reached this decision after the investment of around $10 million
in expenses to support the investigation activity of more than 200
Alcoa/Alcan and contract employees over a two-year period. We believe we
understand every aspect of the proposed transaction, and, as you know, I
spent two days in Venezuela this week speaking with you and your
associates, and with the Ministers of Planning and Finance. The purpose
of this trip was to make sure that we had the most up-to-date
understanding of the issues and possibilities.
Since the first failed auction, a number of changes have been made to
the proposed contract terms. We are particularly concerned about three
aspects of these changes.
First, our Venezuelan counsel cautions us that the changes made are
probably not legal because they have not been approved by Congress. You
assured us that the changes are legal. We asked for the written opinions
of the Attorney General of Venezuela and of the Legal Counsel to the
Congress. Neither has been forthcoming.
Second, some of the changes made to the transaction are mere expressions
of intent, not legally binding. Several are serious; one example of this
is that there is no long-term certainty regarding the availability of
bauxite, the life-blood of the alumina refinery. A prudent investor
would not accept this high risk uncertainty.
Third, some of the changes are undesirable from the point of view of a
financially sound company and an environmentally responsible operator.
On the financial side, one of the proposed contract changes is to give
the successful bidder two years to pay off past due bills. A financially
responsible company pays its bills on time, and would not need or want
On the environmental side, a proposed change would weaken the
responsibility of the successful bidder to clean up the hundreds of
millions of dollars of environmental damage that has been done in the
past. We do not favor weakening the timetables for environmental
compliance. As companies with our own dedication to being stellar
environmental corporate citizens, we do not seek governmental permission
to delay fixing the problems of the past or ask permission to follow bad
environmental practices in any operations under our control.
As you will recall, there are many other points that we discussed in
detail having to do with the long-term economic prospects of the
aluminum companies. One of these points deserves special mention.
We have found that in order to operate anywhere in the world at
world-class levels, it is essential to tell all of the employees the
facts about every aspect of the business. As I said to all of you in our
several meetings, the undeniable truth about the Venezuelan Aluminum
Companies is that they currently employ more than 5000 too many people
by world-class standards. We know this from our extensive global
operating experience. In our conversations, it was indicated that the
successful bidder could "work out" the problem. I fear this approach
because I am afraid that if we were the successful bidder, and began to
"work out" the problem, the workforce would be alienated, believing that
we had deceived them.
We have reached the decision not to bid with real regret, because we
believe that with correct policies and stable business conditions,
Venezuela could have a bright future in the world aluminum industry, and
that Alcoa and Alcan would be the best owners of the Venezuelan Aluminum
Perhaps on another occasion we will be able to help you fulfill this
potential position in the world. Thank you for all of your courtesies to
us and our employees.
Attached is the more detailed Alcoa Paper on Venezuelan Aluminum
Privatization explaining our views of this transaction.
Paul H. O'Neill
Chairman and Chief Executive Officer