U.S. Firm to Buy Canadian Mining Companies

U.S. Firm to Buy Canadian Mining Companies

Phelps Dodge Corp. is buying Canadian mining companies Inco Ltd. and Falconbridge Ltd. for about $40 billion in a bet that global demand will continue to be strong enough to support surging metals prices.

The deal could resolve what had been a four-way bidding war and would create a dominant copper and nickel producer in the North American market. The company would be the world’s largest nickel producer and the largest publicly traded copper producer.

If the offer is approved, Phoenix-based Phelps Dodge will have thwarted two other bids for Inco and Falconbridge. Inco announced its deal to buy Falconbridge last October. As the companies sought regulatory approval, both received alternate bids.

Demand for commodities, particularly from rapidly industrializing China, have steeply pushed up prices for metals such as nickel, aluminum, zinc and copper in the first half of the year, generating a growing stream of cash for mining and metal companies.

The combined company, to be called Phelps Dodge Inco Corp., would have operations in more than 40 countries and employ about 40,000 people globally. It would be the world’s largest publicly traded copper producer, putting it in a leading position as copper prices have quadrupled in the past five years.

Inco shares jumped $5.95, or 10.2 percent, to close at $64.21; Falconbridge shares were up $2.50, or 5.1 percent, to $51.80; and Phelps Dodge shares dropped $6.72, or 8.1 percent, to $76.23, in trading yesterday on the New York Stock Exchange.

“We’re extremely excited about the powerhouse we’re creating,” Phelps Dodge chief executive J. Steven Whisler said in a conference call with analysts and investors. Under terms of the deal, Inco shareholders will receive 0.67 shares of Phelps Dodge stock plus about $15.57 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 June 23.

Inco in turn will increase a previous offer for Falconbridge to about $15.57 from about $11.12 and the exchange ratio to 0.56 shares of Inco, from about 0.52 shares, for each share of Falconbridge.

Based upon the value of Phelps Dodge’s total offer for Inco of about $71.46 per share, the company said the implied value of Inco’s increased offer for Falconbridge is about $55.28, which is a 12 percent premium to Falconbridge’s closing price on June 23.

The chief financial officer of Phelps Dodge, Ramiro G. Peru, said the company had arranged $22 billion in financing from Citigroup Inc. and HSBC Holdings. The financing is sufficient, he said, to bring the transaction to closure. Phelps Dodge also said it planned a $5 billion share buyback program to be completed within 12 months after the acquisition deal closes.

While the plan faces reviews by competition authorities in Europe, the United States and Canada, Phelps said Monday that it did not anticipate any major regulatory hurdles for the deal. It is expected to close in September with Phelps Dodge shareholders owning about 40 percent of the combined company, Inco shareholders owning about 31 percent, and Falconbridge holders owning about 29 percent.

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