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By Matthew Quinn
Rio Tinto announced on Monday that it completed the sale of the majority of Alcan Packaging to Amcor for $1.95 billion.
"The completion of this complex transaction is another significant step in the recapitalization of our balance sheet," said the mining company's CFO, Guy Elliott, in a press release.
The company's finances needed a major overhaul following its $38 billion all-cash acquisition of Alcan in 2007. Rio Tinto snatched the Canadian aluminum producer away from Alcoa, which had bid $28 billion in cash and stock.
And while the deal was a huge win for Rio Tinto, it left the company carrying $37 billion in long-term debt as of June 30, 2008 and almost half of it was coming due by the end of 2010.
That reality, along with a slowing global economy, forced the company to embark on a major recapitalization. Since February 2008, Rio Tinto has announced asset sales of $10.3 billion. In 2008, the company completed divestments totaling $3.1 billion. Then in 2009, Rio Tinto agreed to asset sales of $7.2 billion and completed $3.6 billion of those.
The company also used all of the $14.8 billion in proceeds from a rights offering in June 2009 to pay down debt associated with the Alcan acquisition. That reduced its long-term debt by 36 percent from a year earlier.
So after its latest divestiture, Elliott believes Rio Tinto is ready to start investing more in its existing businesses and reenter the M&A game, telling Bloomberg it will consider additional spending on growth projects in its portfolio and acquisitions of "bolt-on or early-stage project".
That's truly remarkable considering many worried about Rio Tinto's ability to service its massive debt load just a year ago.
"From being on the brink in 2009, to having a surplus of cash in 2011 is a stunning turnaround and raises the question of what to do with any excess cash pile that builds," Johan U. Rode, an analyst at Citigroup, wrote in a report Monday, Bloomberg reported.
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