The INCO LTD. board has recommended that its shareholders accept the $86 per share offer made by Brazil's COMPANHIA VALE DO RIO DOCE (CVRD). Thus ends over 100 years of Canadian ownership of one of this country's best known base metal producers with a truly global reputation. In the mid-20th Century, Inco was supplying one out of three pounds of nickel to worldwide customers. Such dominance was possible because the company created demand for its metals. For example, stainless steel was a rarity before World War II, and it is pervasive in our industrialized world today thanks to Inco's R&D and marketing efforts.
By bowing to the CVRD bid, Inco has closed the chapter on one of this country's most hotly contested merger and acquisition sagas spanning more than two years. In June 2004 rumours surfaced that CVRD wanted to buy Canada's NORANDA. Noranda thought otherwise, entering talks (which eventually broke off) with CHINA MINMETALS. Instead, Noranda bought up the outstanding shares not already in its possession of FALCONBRIDGE, continuing business under that name.
Then in October 2005, Inco and Falconbridge announced plans to merge. That deal would have made the new Inco again the world's largest nickel producer, with production of 1.0 billion lb in 2009. For a lot of industry watchers the deal made sense. The two companies outlined potential savings of more than $350 million by combining their operationsmines, mills and smeltersin Sudbury, Ont.
The Inco-Falconbridge proposal drew some unwanted attention, first from Vancouver's TECK COMINCO which offered to buy Inco if the deal with Falconbridge was not completed. To fight off Teck's hostile offer, Inco sought a white knight and found PHELPS DODGE. The American copper producer made an offer for Inco whether or not the new Inco included Falconbridge. Meanwhile, XSTRATA offered to buy Falconbridge, an offer that derailed Inco's takeover attempt in August 2006. Then CVRD waded in with its all-cash offer for Inco. Teck Cominco bowed out when it could not raise the money to increase its offer; then Phelps Dodge stepped aside.
Finally, on Sept. 24, Inco chairman and CEO Scott Hand said, "We are satisfied that the CVRD offer of Cdn$86 per share represents compelling value for our shareholders." So it now appears that the world's largest iron ore producer (CVRD) is going to join the ranks of the world's major nickel miners.
Although it said it is "pleased" with the support of Inco's board, on Sept. 25 CVRD issued its own press release extending its offer to Oct. 16 because, "CVRD has yet to obtain several regulatory clearances in Canada and Europe before the conclusion of the offering process." It awaits the blessings of the Investment Canada Act and EC Merger Regulation. No one expects the regulators to scuttle the deal at this point.
Meanwhile, Inco is saying it expects third quarter financial results will set new records. It believes net earnings will "exceed significantly" both analysts' estimates and the record second quarter numbers. (Think continuing high metal prices.) But the company is also anticipating lower amounts of production due to equipment breakdowns in Ontario and Manitoba, a strike in Newfoundland, and a furnace fire at its smelter in Indonesia.
These production cuts will sooner or later catch up at Inco operations and put an end to quarterly record-setting, but it will probably fall to CVRD to report the future bad news.
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