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After Rio Tinto’s Alcan mess, will bad deals return to haunt other companies?

These are stories Report on Business is following Thursday, Jan. 17, 2013.

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Alcan crushes Rio Tinto
The $38-billion takeover of Canada's Alcan Aluminum came back to haunt Rio Tinto PLC today, with a massive writedown and the departure of two top executives, including CEO Tom Albanese.
The mining giant disclosed it will take a hit of about $14-billion (U.S.) after tax in its 2012 results. Some $3-billion of that is on its Mozambique coal operations, while $10-billion to $11-billion is related to its aluminum assets, largely Rio Tinto Alcan. It's the second major aluminum writedown in as many years.

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Mr. Albanese and Doug Ritchie, the man behind Rio's recent Mozambique deal, are leaving their jobs immediately, but won't leave the company until mid-July. Mr. Albanese is being succeeded by Sam Walsh of the company's iron ore operations.

Rio Tinto noted that they will get their base pay during the period, neither will walk away with any lump-sum payment, annual bonus for 2012 and 2013, or long-term stock compensation for this year.

"The Rio Tinto Board fully acknowledges that a writedown of this scale in relation to the relatively recent Mozambique acquisition is unacceptable," said chairman Jan du Plessis.

"We are also deeply disappointed to have to take a further substantial writedown in our aluminium businesses, albeit in an industry that continues to experience significant adverse changes globally."

The Globe and Mail's mining reporter, Pav Jordan, notes that Rio has stumbled most in the wake of the financial crisis among the world's big miners, and its language of late has been more pessimistic.

"It is early days but we think that the market will be impressed by Rio's face-saving operation here," said sales trader Will Hedden of IG in London.

"Many big name firms have been slow to react to poor M&A deals over the last few years, and the growth of 'shareholder power' in 2012 will have undoubtedly played a part in Rio's defined line drawing here."

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Dreamliner troubles mount
Shares of Boeing Co. slipped again today amid mounting troubles for the company's embattled Dreamliner.

World aviation authorities have now grounded the 787 while they probe safety issues, The Globe and Mail's Guy Dixon reports.

The Federal Aviation Administration in the United States took action late yesterday, while European, Japanese and Indian officials followed suit today.

"Before further flight, operators of U.S.-registered, Boeing 787 aircraft must demonstrate to the Federal Aviation Administration that the batteries are safe," the FAA said after an All Nippon flight was forced to make an emergency landing related to the battery.

Boeing says it is "working around the clock" with regulators and customers, and that it's confident the Dreamliner is safe.

"We will be taking every necessary step in the coming days to assure our customers and the traveling public of the 787's safety and to return the airplanes to service," chief executive Jim McNerney said in a statement.

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Citigroup stock sinks
There are misses, and then there are misses.

Citigroup Inc. shares tumbled today after the banking giant posted a stronger profit, though still weaker than expected by analysts, in its fourth quarter.

Citigroup earned $1.2-billion (U.S.) or 38 cents a share, up from $956-million or 31 cents a year earlier. That's despite a hit of $1.3-billion largely related to legal costs.

Adjusted earnings per share came it at 69 cents, compared to a projection among analysts for 96 cents.

Revenue climbed to $18.2-billion from $17.2-billion.

"Our bottom line earnings reflect an environment that remains challenging – with businesses working through issues like spread compression and regulatory changes – as well as the costs of putting legacy issues behind us," said chief executive officer Michael Corbat.

H&R eyes Primaris
H&R Retail Real Estate Investment Trust believes now is the time to take over Primaris Retail Real Estate Investment Trust, with Target Corp. about to kick off an invasion of Canada by foreign retailers, The Globe and Mail's Tara Perkins reports..

By way of its bid, H&R is seeking to get bigger and stronger at a time when the mall ownership game is changing, Tom Hofstedter, the CEO of H&R, told analysts on a conference call today.

H&R's friendly offer for Primaris comes after a hostile bid caught Primaris off guard.

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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