MERGER MANIA – Everyone wants a piece of somebody

When TECK COMINCO announced on May 8 that it wanted to swallow INCO LIMITED, the news touched off a chain of events...
When TECK COMINCO announced on May 8 that it wanted to swallow INCO LIMITED, the news touched off a chain of events that could lead to one of the biggest shakeups in Canadian mining history. Teck Cominco's $17.8-billion offer was contingent on the Inco-FALCONBRIDGE merger being abandoned, something the two companies cannot do without significant financial penalties.

Now Inco has been forced to up the ante in its friendly Falconbridge takeover. Inco added another $5/share or $1.9 billion in cash to the pot, bringing the value of its cash-and-stock offer up to approximately $19.0 billion. The move was made because the Falconbridge stock price has risen significantly thanks to continuing strong metals prices, since Inco's bid was announced in October 2005. The deal has since become bogged down in the anti-trust review process in both the United States and Europe.

Meanwhile, Swiss multinational XSTRATA PLC has re-entered the fray. It paid over $2.05 billion for approximately 20% of Falconbridge in August 2005. When it bought the shares from Brascan (now BROOKFIELD ASSET MANAGEMENT), Xstrata agreed to top up the price should it make a higher offer for the rest of Falconbridge. But that agreement expired on May 15, and now Xstrata is on the move, offering (on May 17) a total of $16.1 billion for the 80% of Falconbridge it does not already own. This is an all-cash offer, and a takeover by Xstrata is unlikely to be scrutinized unfavourably by regulators. A response from Falconbridge executives the same day indicated that they do not believe Xstrata's all-cash offer is high enough, and still favour a combination with Inco.

In brief, Inco wants Falconbridge; Teck Cominco wants Inco but not Falconbridge; and Xstrata will happily take all the Falconbridge it can get.

Money talks, and over $50 billion talks very loudly. The Canadian mining scene is likely to look much different when all of this money has changed hands.


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