Phelps Dodge inks deal to buy mining rivals

Phelps Dodge inks deal to buy mining rivals

Phelps Dodge Corp. said Monday it is buying Canadian mining companies Inco Ltd. and Falconbridge Ltd. in a cash and stock deal worth about $40 billion that will create one of the world’s largest mining companies.

The new company, to be called Phelps Dodge Inco, would have operations in more than 40 countries and employ about 40,000 people globally. It will be the world’s biggest nickel producer and largest publicly traded copper producer, according to Phelps Dodge.

Under terms of the deal, Inco shareholders will receive 0.672 shares of Phelps Dodge stock plus 17.50 Canadian dollars ($15.59) per share in cash for each share of Inco stock, representing a premium of 23 percent to Inco’s market price as of close of trading on June 23.

Inco in turn will increase a previous offer for Falconbridge to 17.50 Canadian dollars ($15.59) from 12.50 Canadian dollars ($11.14) and the exchange ratio to 0.55676 shares of Inco, from 0.524 shares, for each share of Falconbridge.

Based upon the value of Phelps Dodge’s total offer for Inco of 80.13 Canadian dollars ($71.40) per share, the company said the implied value of Inco’s increased offer for Falconbridge is 62.11 Canadian dollars ($55.34), which is a 12 percent premium to Falconbridge’s closing price on June 23.

Phelps Dodge said its acquisition of Inco is not contingent on that company completing its deal for Falconbridge.

The deal comes as metals prices have soared during the first half of 2006, driven by strong demand from countries such as China. The plan still faces reviews by competition authorities in Europe, the United States and Canada.

Phoenix-based Phelps said the combination should result in annual ”synergies” of $900 million by 2008. Savings from the Inco-Falconbridge combination alone are estimated at $550 million.

Phelps Dodge said it also intends to initiate a share buyback program of $5 billion after the deal is closed.

The main office and the new company’s copper division will be headquartered in Phoenix. Inco Nickel, the new company’s nickel division, will be headquartered in Toronto.

The final deal, which is subject to shareholder and regulatory approval, is expected to close in September, with Phelps Dodge shareholders owning about 40 percent of Phelps Dodge Inco, current Inco shareholders owning about 31 percent, and current Falconbridge holders owning about 29 percent.

J. Steven Whisler, chairman and chief executive of Phelps Dodge, will hold those positions with the new company. Inco’s CEO, Scott M. Hand, will be vice chairman of the combined company, while Derek Pannell, Falconbridge CEO, will become president of Inco Nickel.

The new company’s 15 member board will consist of 11 members from the Phelps Dodge board and 4 from the boards of Inco and Falconbridge.

Copyright 2006 The Associated Press. All rights reserved.

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