French sovereign fund teams with Apollo

A French sovereign fund, formed by Nicholas Sarkozy, is teaming with Apollo to make a joint offer for French-based Alcan Engineered Products.

The €20 billion Fonds Stratégique d’Investissement (FSI), a French sovereign wealth fund, and Apollo Global Management, have submitted an offer to buy a French subsidiary of mining company Rio Tinto, according to a statement by the latter.

If the offer is accepted, the pair will own 61 percent of the company, with Apollo owning 51 percent and FSI owning 10 percent. Rio Tinto will retain the remaining 39 percent of France-headquartered Alcan Engineered Products, which it acquired in 2007.

Alcan currently owns French aluminium supplier Pechiney, which it bought in a hostile bid in 2003 for €4 billion.

One of the world’s 20 largest sovereign wealth funds, the FSI was launched by French president Nicholas Sarkozy in 2008 to protect the capital structure of what it calls “strategically important companies” through making direct minority investments.

The proposed FSI acquisition of Alcan was described as “emblematic” for the French fund by its executive board member Bertrand Finet, in Friday’s Financial Times. Finet added that FSI is doing the deal to keep Alcan firmly “anchored” in France, where its headquarters and 10,000 employees currently reside.

The deal would also be “in line” with Rio Tinto’s strategy of exiting its non-core Alcan assets, said chief financial officer Guy Elliot in a statement. In July, Rio sold the beauty packaging and medical flexible divisions of Alcan.

The joining of a US private equity firm and a sovereign wealth fund to bid for a mining asset comes in the same week that a year-long battle between Oaktree Capital Management and Dubai International Capital to restructure debts held by German aluminium supplier Almatis came to a head.

In July 2009, Oaktree Capital and DIC partnered to restructure around $1 billion of Almatis debt. However, they could not agree on the best way to restructure the company, which eventually filed for bankruptcy in the US on April 30 2010.

Oaktree and DIC went to court to settle, with Almatis eventually backing DIC, which subsequently retained a 60 percent equity stake in the company. Oaktree and other senior creditors were repaid in full.