Market Overview

Alcoa, Rio Tinto Rumor Seems Like It's Made Of Tin Foil (AA, RIO)


Earlier today, we heard about a potential rumor with Rio Tinto (NYSE: RIO) being rumored to buy Alcoa (NYSE: AA) for $25.50 per share.

While the Rio Tinto, Alcoa rumor is nothing new, the $25.50 per share offer reported by CNBC was something new.

Benzinga is hearing negative chatter from those on Wall Street, suggesting that this deal is nothing more than someone looking to offload some stock, albeit at a higher price.

Those on Wall Street aren't sure how likely the deal is to ever get done, considering that Rio Tinto would need to pay around $25 billion for Aloca, which is around a 30% premium to the company's current share price.

CNBC's reporting of the $25.50 per share offer does give the rumor some credence, but it appears that traders are taking this with a grain of salt, as shares are well off their session highs. Shares had touched $17.96 earlier in the session, good for a gain of around 4%, but shares are now up less than 2% with just over 90 minutes left to the trading session.

Considering that Rio Tinto already owns Alcan, the likelihood of this deal ever getting consummated is small, although, with cheap money, anything is possible.

Volume of course, is understandably high, having traded around 56 million shares, more than twice its average daily volume of 25 million shares. Call option volume is at record highs, having traded over 290,000 contracts, indicating that someone does think that the deal has credence, even though many on Wall Street believe otherwise.

If you are a regular investor, it doesn't appear that this rumor for Alcoa by Rio Tinto has much credence, and the gains are likely to fade in the coming days.

As I said earlier though, in this era of cheap money and free flowing liquidity, anything is possible, even if it isn't probable.

Posted-In: CNBCM&A News Short Ideas Rumors Commodities Media Trading Ideas Best of Benzinga


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