Phelps Dodge forges blockbuster mining takeover deal
US mining giant Phelps Dodge announced a mega-takeover deal to buy Canadian rivals Inco and Falconbridge for about 40 billion dollars, forging the world’s largest nickel company and the largest listed copper producer.
The cash-and-stock deal comes as red-hot commodities prices are producing tonnes of cash, spurring consolidation in the mining sector as companies seek to increase production.
Phelps Dodge said that Inco Limited and Falconbridge Limited had agreed to combine “to create a North American-based mining company that is one of the world’s largest.”
Under the agreement, each shareholder of Inco would receive 0.672 shares of Phelps Dodge stock plus 17.50 Canadian dollars (15.57 US dollars) per share in cash for each share of Inco stock. That represents a premium of 23 percent to Inco’s closing price on Friday, Phelps Dodge said.
The new company, Phelps Dodge Inco Corporation, and its copper division will be based in Phoenix, Arizona, Phelps Dodge’s headquarters. Inco Nickel, the new company’s nickel division, will be headquartered in Toronto.
Phelps Dodge said Phelps Dodge Inco will be the world’s largest publicly traded copper producer and a leading producer of cobalt and molybdenum, a material used in high-strength alloys and other industrial applications.
“This is a blockbuster deal, eclipsing BHP’s 13-billion-dollar takeover of Billiton back in 2001 that created the world’s largest mining company, even surpassing Mittal Steel’s 33.8-billion-dollar takeover of Arcelor” announced Sunday, said Kimberly DuBord of Briefing.com
“This is a great move for Phelps Dodge, as it will diversify its asset base and expand its geographical reach,” said DuBord, noting the producer, which owns mines in Arizona and New Mexico, gains nickel production in Canada and copper assets in Chile.
For the quarter ended March 31, the three companies had combined revenues of 6.3 billion dollars and earnings of 1.9 billion dollars before interest, taxes, depreciation and amortization.
Phelps Dodge also announced a share buyback program of 5.0 billion dollars as part of the takeover.
The takeover deal incorporates Inco’s agreed acquisition of Falconbridge. Taking into account that transaction, the three-way merger is valued at 56 billion dollars.
The massive deal dwarfs recent maneuverings in the Canadian mining sector. Falconbridge was eyed for takeover by Swiss company Xstrata and Inco currently is the target of a hostile bid from Canadian company Teck Cominco, the world’s largest zinc producer.
The transaction, which is subject to Phelps Dodge and Inco shareholder approval and regulatory approval, is expected to close in September. It was recommended by the boards of directors of the three companies.
“This transaction represents a unique opportunity in a rapidly consolidating industry to create a global leader based in North America — home of the world’s deepest and most liquid capital markets,” said Phelps Dodge’s chairman and chief executive Steven Whisler.
“The combined company has one of the industry’s most exciting portfolios of development projects, and the scale and management expertise to pursue their development successfully,” he said.
Whisler will be chairman and CEO of the new company. Scott Hand, chairman and CEO of Inco, will become vice chairman of Phelps Dodge Inco, and Falconbridge CEO Derek Pannel will become president of Inco Nickel.
On Wall Street, shares in Phelps Dodge dropped 6.72 dollars or eight percent to 76.23 dollars. Inco rose 5.93 to 37.30, and Falconbridge was up 2.50 at 51.80.
Once the merger is complete, Phelps Dodge Inco will have operations in more than 40 countries and some 40,000 employees worldwide.