MERGER UPDATE – Inco, Falconbridge bidders jockey for position

The "story of the summer", the three-way bidding war for control of INCO and FALCONBRIDGE, shows no signs of going ...
The "story of the summer", the three-way bidding war for control of INCO and FALCONBRIDGE, shows no signs of going away. The bidders have put big money on the table, and they are serious. News released over only the past seven days points toward even bigger money.

On July 19, Switzerland's XSTRATA upped its offer for the 80% of FALCONBRIDGE it does not already hold. It is now offering $62.50 in cash per Falconbridge share or approximately $19.2 billion. Its offer has also been amended to ensure Falconbridge shareholders will receive the special $0.75 cash dividend that Falconbridge declared on July 16. Xstrata was cleared of competition issues in Europe last week.

Perhaps to make itself appear more "Canadian", Xstrata has created a wholly owned subsidiary called XSTRATA CANADA to complete the takeover.

Almost a week earlier, on July 13, INCO was forced to extend its Falconbridge offer until midnight on Monday, July 24. It added a dollar in cash to its offer last week, making the share-and-cash deal worth approximately $63.43 per Falconbridge share. Furthermore, Inco has reduced the minimum take-up of Falconbridge shares to 50.01% from two-thirds. The Inco-Falconbridge deal has been cleared by regulators in both the United States and Europe.

At the same time, PHELPS DODGE has increased its offer for Inco by $2.75 a share. It is the extra cash from Phelps Dodge that has allowed Inco to boost its offer for Falconbridge. This offer for Inco stands at $80.13 per share for a combined Inco-Falconbridge company.

Making itself look even better, Inco has released news of record earnings for the second quarter of 2006. It reported adjusted net earnings of US$400 million or US$2.04 per share. The news comes after the company reported earnings of US$242 million for the first quarter of the year.

In May TECK COMINCO offered $78.50 per share to take over Inco. That deal is conditional on Inco not acquiring Falconbridge. Although industry watchers have not heard much about the Teck Cominco offer lately, they would be wise to remember it is still on the table. If shareholders voted for it, the deal with Phelps Dodge would be off.


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