{australien_flagge}Good things take time, they say. Four months have apparently not been enough to finalize all details of the planned joint venture between FYI Resources (ASX: FYI; FRS: SDL) and Alcoa (NYSE: AA). However, both parties continue to express great confidence and therefore, by mutual agreement, are giving themselves another four weeks to reach a final deal. The new target date is now October 5. The stock market initially reacted to this announcement today with a 10 percent drop.
JV-Negotiations well underway
That the negotiations are well underway and the delay is not a cause for disappointment can be gleaned from, among other things, a sentence from Alcoa’s chief negotiator quoted in today’s FYI Resources press release. The very fact that Alcoa Australia President Michael Gollschewski is speaking publicly speaks for itself, “Alcoa continues to be encouraged by the progress that has been made with respect to the potential joint development of an HPA project with FYI Resources. We will continue to carefully evaluate this opportunity, which has the potential to be a natural complement to Alcoa’s existing alumina refining activities.” It’s hard to say more without prejudging the final outcome.
For those who prefer to trust body language in addition to written statements, be sure to watch the video interview with Proactive Investors released today by Roland Hill, MD of FYI Resources. In it, Hill talks about the differing speeds of the two partners and then, with noticeably restrained euphoria, comes to talk about a “positive new development” that has occurred on the FYI Resources side since talks with Alcoa began – and that is separate from and in addition to the Alcoa deal being sought.
Hill only hints at what it’s all about. The talk is about “broader down-stream value add type opportunities” that were not part of the JV negotiations at the beginning. The press release then goes on to talk even more specifically about “broader HPA value add initiatives” that “could enhance and strengthen the JV’s position in the marketplace.” Hill apparently considers these additional opportunities significant enough to be included in the JV contract. In doing so, he acknowledges that this also delayed the deal with Alcoa. But he says it is more important to get it right than to necessarily meet a pre-set timetable.
Hill summarized the state of play in today’s press release as follows, “Alcoa and FYI have made tremendous progress in negotiating the HPA JV. In our view, both companies have a similar vision for the JV and the growth opportunities in the HPA strategy. Both companies have invested significant time and resources to advance the JV discussions to this point, and it is a mutual decision to extend the negotiations to address the value creation opportunities. We view the extension as a positive, as it gives both parties more time to evaluate and implement their intentions to achieve a positive outcome. We are simply giving the potential JV discussions the time and consideration that the strategy deserves.”
Summary: It was predictable that the market would first take the further delay of a deal negatively. However, a comparatively moderate 10 percent drop in the share price indicates that the vast majority of investors still believe in a positive outcome. Finally, the long negotiation period can also be interpreted as evidence of the thoroughness with which the future implications of a collaboration are being considered. After all, we are talking about a joint venture with a claim to global leadership in a new industry. And in the end, there is probably a lot of money at stake. Alcoa is certainly aware of the first-mover advantage that a JV would bring. They are also well aware of the alternative. A failure of the JV negotiations would not be the end of the HPA industry. However, others would then probably fill the vacancy left by the new market leader. We find it hard to imagine that Alcoa would allow that to happen. After all, Alcoa’s chief negotiator Gollschewski is already talking about a “natural complemen” to Alcoa’s existing alumina business. Hopefully, we’ll know more and definitively in four weeks at the latest.
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