Phelps, Inco, Falconbridge to mergeadmin
Phelps Dodge Corp, Inco Ltd and Falconbridge Ltd have announced plans to merge in a deal worth around US$40 billion.
The deal will create the world`s largest nickel producer and also the largest publicly traded copper producer, according to a statement on the PR Newswire.
The new company – to be called Phelps Dodge Inco Corp – will base its corporate headquarters and copper division in Phoenix and its nickel division in Toronto.
Under the terms of the deal, Phelps will use a mixture of cash and stock to acquire all of Inco`s outstanding common shares at a value of C$80.13/share (based on Friday`s closing stock price and exchange rate).
Each Inco shareholder will receive 0.672 of a Phelps share plus C$17.50 in cash for Inco share – a premium of 23% on Inco`s closing stock price last Friday and a 19% premium to Teck Cominco`s valuation of Inco during its recent hostile bid.
Inco to up Falconbridge offer
At the same time, Inco has agreed to improve its friendly offer for Falconbridge.
Under the new recommended deal, Inco will raise the cash part of its offer to C$17.50/share from C$12.50/share, and up the stock portion of its bid from 0.524 shares of Inco for each Falconbridge share to 0.55676 shares for each Falconbridge share.
Based upon Phelp`s valuation of Inco, the latters revised offer values Falconbridge at C$62.11/share – a 12% premium to Falconbridge`s closing share price last Friday and a premium of 18% to Xstrata`s recent hostile bid for Falconbridge.
The Falconbridge-Inco deal remains subject to regulatory approval and Inco`s tender is expected to close in July. Inco anticipates conducting a second-stage transaction to acquire the remaining Falconbridge shares ending in August.
“Upon the closing of the Phelps Dodge-Inco combination, shareholders of Falconbridge who have been issued Inco common shares in the Inco-Falconbridge transaction will be entitled to receive for those shares the same package of cash and Phelps Dodge shares as will other Inco shareholders,” said the statement.
Phelps said it “strongly supports” Inco`s bid for Falconbridge and has agreed to buy US$3 billion of convertible subordinated notes from Inco to provide it with “substantial additional liquidity” in buying Falconbridge stock.
In addition, Phelps said it will complete a US$5 billion share repurchase program within the 12 months after closing the Inco deal, minus the amount of the convertible notes.
Phelps added that its deal with Inco is not reliant on the Inco-Falconbridge merger going through.
If the Inco-Falconbridge deal falls through, Inco shareholders will receive the same stock and cash consideration as detailed in the three-way merger and Phelps would execute the full US$5 billion share buy-back.
Inco has agreed to pay a break-fee of US$475 million on a stand-alone basis and US$925 million if it acquires Falconbridge, and has given Phelps the right to match any future competing offers.
Phelps has agreed to pay Inco a break-fee of US$500 million under certain circumstances.
The new company is expected to produce annual synergies of some US$900 million by 2008, a figure that includes US$500 million in synergies from the Inco-Falconbridge merger.
The Inco-Falconbridge synergies are based partly on the two companies Sudbury operations while the inclusion of Phelps will bring improvements in technology, boosted recoveries and savings in procurement and management, said the statement.
The new synergies are expected to be immeadiately accretive to cash flow and accretive to earnings per share from 2008.
As well as being the largest producer of nickel and the largest publicly traded copper producer, Phelps Dodge Inco Corp would be the world`s second-largest producer of molybdenum and third-largest producer of cobalt.
The merged company – which would be listed on the New York Stock Exchange and apply for listing on the Toronto Stock Exchange – would have operations in more than 40 countries and employ around 40,000 people.
Speaking about the planned merger, Phelps chief executive J. Steven Whisler said: “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.
“The creation of this new company gives us the scale and diversification to manage cyclicality, stabilise earnings and increase shareholder returns,” he added.
Inco chairman and chief executive Scott Hand said the deal would: “allow Inco`s shareholders, in addition to receiving a substantial premium for their stock, to share in the significant synergies both from our agreed merger with Falconbridge and from the combination with Phelps Dodge, and it creates an opportunity for all three groups of shareholders to participate in an exciting, new, diversified industry leader.”
Derek Pannell, Falconbridge`s chief executive, was equally as bullish about the value of the proposed deal to his shareholders.
“This is an industry-redefining transaction. Phelps Dodge Inco will have the scale, diversification, market leadership, reserve position, growth profile and balance sheet necessary to create tremendous value for shareholders.”