DOING SOME DIGGING Inco/Falcon deal brings out nationalists

The bidding war for INCO LTD. and FALCONBRIDGE continues to heat up. Along with it comes pressure to keep Canadian ...
The bidding war for INCO LTD. and FALCONBRIDGE continues to heat up. Along with it comes pressure to keep Canadian mining companies in Canadian hands. Our readers are asking for more information about control of the merged companies. CMJ is pleased to share the following.

The makeup of Inco's shareholders can be found among the fine print of its 10-K filing with the U.S. Securities and Exchange Commission (SEC). For a widely held international enterprise, it looks to be marginally "Canadian". The company reports that 50.4% of its stockholders are Canadian residents, 49.3% are U.S. residents and the balance (less than 1%) live elsewhere. Canadian investors control 61% of the issued shares, and U.S. investors hold 31%.

A look at the list of Inco's senior management finds native Canadians in the minority. CEO Scott Hand is Canadian; president of the Asia/Pacific operations Ron Aelick is Canadian, as is VP of human resources Mark Daniel. Other executives grew up in England (Peter C. Jones), Australia (Mark Cutifani and Peter Goudie), South Africa (Simon Fish), and the United States (Stuart Feiner). The geographical origins of the executive team seems to me fitting for a company with operations throughout the world.

What makes Inco "Canadian" is it's commitment to this country and the cultural expectations of its citizens. We at CMJ have no reason to think these attitudes will change if PHELPS DODGE succeeds in taking over Inco, with or without Falconbridge.

The new PHELPS DODGE INCO company would be headed by chairman and CEO Steven Whisler (who currently holds the same titles at Phelps Dodge), vice-chairman Scott Hand (who is now chairman and CEO of Inco), and president Derek Pannell (currently CEO of Falconbridge and a graduate of Imperial College in London, England). Rounding out the team will be president and COO Tim Snider and CFO Ramiro Peru (both of Phelps Dodge). Hand and Pannell will remain in Toronto, and their presence will help maintain the new company's Canadian character.

Meanwhile, last week the bidding war for Falconbridge got more expensive.

Falconbridge's Swiss suitor, XSTRATA PLC, upped its offer to Cdn$59.00 per share, all-cash. That's a jump from the Cdn $52.50/share it had previously offered for the 80% of Falconbridge it does not already own. The offer is expected to close on Friday, July 21. Xstrata made the revised offer despite the announcement that Industry Canada has prolonged its review of the deal into early August.

Inco, Falconbridge and Phelps Dodge are all urging Falconbridge shareholders to accept the Inco offer, which is valued at Cdn$61.04 per share (cash and Inco shares).

Waiting in the wings is TECK COMINCO's offer for Inco, minus Falconbridge. It is worth Cdn$78.50 in cash-and-shares per Inco share. An Inco-Teck Cominco combination would be thoroughly Canadian and would not raise many eyebrows at Industry Canada's Investment Review Division. That deal has already received the necessary anti-trust clearances from the European Union.

For comparison, the Phelps Dodge offer for Inco is valued at Cdn$80.13 in cash-and-shares per Inco share. Today, July 12, Phelps Dodge announced that the waiting period for review under U.S. anti-trust regulations has been terminated ahead of schedule. Seems that Uncle Sam likes the deal.

The mining industry hasn't heard the end of this story yet.


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