DOING SOME DIGGING – Teck Cominco’s offer for Inco

Don Lindsay certainly plays his cards close to the vest. CMJ's editors interviewed the CEO of TECK COMINCO in Vanco...
Don Lindsay certainly plays his cards close to the vest. CMJ's editors interviewed the CEO of TECK COMINCO in Vancouver at the end of March for an upcoming special issue on the company, and he said nothing about the $17.8-billion hostile takeover of INCO LTD. announced this week. When we pointedly asked if he had plans for the $3 billion of cash in the company treasury, his answer was non-committal and his demeanour was disarming.

Lindsay did tell CMJ that Teck Cominco was looking for four or five assets with long life, 30 years or more. The foray into the oil sands business announced last autumn was only the first such acquisition. Specifics about any other acquisitions were not forthcoming, but it is obvious now that he was working hard to find them.

Teck Cominco's May 8 offer for Inco is exclusive of the assets of FALCONBRIDGE. The takeover will be pursued only if Inco drops its bid to merge with Falconbridge. The Inco-Falconbridge deal has been delayed by antitrust concerns raised by regulators in the United States and Europe. Lindsay is betting that the Inco-Falconbridge merger "is unlikely to be completed on its present terms."

Lindsay says that his company approached Inco about a merger shortly before the Inco-Falconbridge deal was announced. The talks went nowhere, and now Teck Cominco has launched its hostile bid. The problem with a hostile bid in this case is that it could spark other companies to come forward with competing bids. Imagine BHP BILLITON, RIO TINTO, CVRD and NORILSK NICKEL in a bidding war for Inco.

Several writers have reported that Teck Cominco was in talks with XSTRATA last summer. Xstrata holds approximately 20% of Falconbridge, a company many analysts thought would be a target for Teck Cominco.

Now a word about timing. Xstrata had purchased its Falconbridge shares from Brascan (now BROOKFIELD ASSET MANAGEMENT). Part of the deal was that if Xstrata made an offer for the remaining Falconbridge shares at a price higher than it paid to Brascan, Xstrata would top up (add to) its original purchase price. That agreement will expire on May 15. If the Teck Cominco offer for Inco's assets succeeds, it's likely that Xstrata would go after the remaining 80% of Falconbridge, after May 15.

Corporately, there is probably little love lost between Inco and Teck Cominco. Teck launched the battle for control of the Voisey's Bay nickel-cobalt deposits when it purchased a 10% interest in Diamondfields in 1995. The price it paid drove the cost of Inco's initial 25% investment up to nearly $400 million. (For its 18-month investment in Diamondfields, Teck pocketed a cool $350 million of profit, which came in handy for investing in the giant Antamina mine in Peru.) A year later Lindsay, in his previous job as investment banker, persuaded nickel rival Falconbridge to launch a competing $4-billion takeover bid for Voisey's Bay. Inco eventually won control of the deposits when it added $300 million to its offer. Voisey's Bay became an expensive acquisition, one that Inco wrote down by $1.5 billion in 2002.

This story is far from over, and I look forward to keeping CMJ readers apprised of the situation as it develops. For the details of Teck Cominco's offer, visit our website at and refer to the May 8 Headline News story "Teck Cominco targets Inco, sans Falco".


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