Inco, Phelps, Falco raise stakes in mining battle

Inco, Phelps, Falco raise stakes in mining battle

Phelps Dodge Corp. raised its bid for Inco Ltd. on Sunday and Inco raised its offer for Falconbridge Ltd., as the companies battled to protect their proposed US$41 billion three-way merger and create the biggest mining company in North America.

The moves, together with news of a special dividend from Falconbridge, are aimed at thwarting a hostile offer from Swiss-based Xstrata Plc for Falconbridge and a hostile offer from Teck Cominco Ltd. for Inco.

Inco, whose offer is being backed by U.S.-based Phelps, was under pressure to raise its bid for Falconbridge after Xstrata sweetened its bid for the 80 percent of Falconbridge it does not already own to C$59 a share last week.

The higher all-cash offer from Xstrata, combined with the fact that Falconbridge’s shareholder rights plan expires July 28, meant that the last day Inco could raise its offer was July 17, as revised bids need 10 days for shareholders to review.

Inco has now increased the cash portion of its offer for Falconbridge by C$1 to C$18.50. The stock portion of the deal remains the same at 0.55676 of an Inco share. Based on Friday’s closing price, Inco’s offer is worth C$60.20 a share.

Copper producer Phelps, which faced some investor backlash for agreeing to buy Falconbridge and Inco, raised the cash portion of its bid for Inco by C$2.75 to C$20.25. The stock portion of the bid remains the same at 0.672 of a Phelps share.

Phelps’ offer for Inco is not conditional on Inco getting Falconbridge. Phelps and Inco have amended their agreement so that Phelps and Inco “may be consummated” before Inco acquires 100 percent of Falconbridge.

Inco has reduced its minimum take-up condition to 50.01 percent, down from the two-thirds minimum requirement in the previous offer. Inco also extended its offer by three days to July 27.

If the trio is successful they would create a company that is the world’s largest nickel producer and largest publicly traded copper producer, with strong positions in cobalt and molybdenum.

“We strongly believe the combination of Phelps Dodge, Inco and Falconbridge represents a unique value-creation opportunity for the shareholders of all three companies,” Phelps CEO Steven Whisler said in a statement.

In endorsing Inco’s latest offer, Falconbridge’s board of directors declared a special cash dividend of 75 Canadian cents per Falconbridge share that is payable August 10.

The companies said the implied value of Inco’s cash and stock offer for Falconbridge “stands at C$63.43″ per share and is superior to the unsolicited offer by Xstrata.

Calls to Xstrata were not immediately returned, though a person familiar with the case said: “This isn’t over.”

“Of course they can come back, the question is if they will,” he said.

Xstrata’s offer expires July 21 and needs approval from Canadian authorities. Inco’s offer for Falconbridge has met all regulatory requirements.

As part of the three-way deal, Phelps expects to repurchase up to US$5 billion of its shares in the 12 months after closing.

Phelps’ sweetened cash and stock offer for Inco, valued at C$80.70, is higher than Teck’s cash and stock offer valued at about C$78.50. Teck has asked Canadian regulators to strike down Inco’s shareholder rights plan and has steadfastly said it sees no need to increase its offer. Its offer for Inco expires July 24.


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