In a hostile bid announced on Monday, Teck Cominco Ltd.,
launched a $17.8 billion * cash and share offer to take over
Inco Ltd., conditional on Inco not completing its friendly
merger with Falconbridge Ltd.  (*All figures in Canadian
dollars unless otherwise stated.)
Inco shareholders would receive $78.50 per common share in
cash or shares: $28 in cash and 0.6293 of a Teck Class B share.
Teck Cominco president and CEO Donald R. Lindsay said,
"This combination of two great mining companies will
create a Canadian powerhouse on the world stage, with the
financial strength and management skills necessary to
capitalize on its existing portfolio of long-life, low-cost
operations and its unique portfolio of world-class development
projects."
The merger will create a $35 billion diversified Canadian
mining company with market-leading positions in zinc, nickel
and metallurgical coal. It will also have a significant
presence in copper, gold and other commodities as well as a
foothold in the Canadian oil sands.
Teck Cominco currently owns approximately 8.9 million Inco
common shares. Last year, before the Inco/Falconbridge merger
was announced, Teck had discussions with Inco about a possible
merger.
A Monday afternoon news release from Inco stated, "Inco
remains committed to its friendly, value-creating transaction
with Falconbridge and to meeting its obligations under the
support agreement with Falconbridge."
Falconbridge's CEO Derek Pannell in a released statement
said, "Our agreement with Inco is an excellent transaction and
offers compelling value to shareholders of both our companies,
with the potential for a re-rating in the capital markets."
He also stated, "We are surprised that Teck Cominco has
taken this step to interfere in our transaction and will review
the implications of what they have done."
Inco and Falconbridge estimate synergies from their merger-many
to be found in the Sudbury Basin-in the neighbourhood of at
least $350 million (US) per year. This was based on lower
commodity prices in 2005.
As of Tuesday morning, nickel was selling slightly above $9 (US) per pound,  while copper was hovering close to $3.50 (US) per pound-record setting highs for both metals. Teck Cominco is targeting administrative and operating synergies of over $150 million annually.
Additionally, Teck's patented CESL hydrometallurgical
technology has the potential to produce significant cost
savings at Inco's operations.
Headquartered in Vancouver, Teck Cominco is a diversified
Canadian mining company and the world's largest producer of
zinc, a metal primarily used as a coating on iron and steel to
protect against corrosion-the fourth most important metal used
in industry after iron, aluminum and copper. The company has
been operating in the Trail, B.C. district for over a century
and has a similar impact and history to that region as Inco and
Falconbridge has had in the Sudbury Basin.
Teck is also a significant producer of metallurgical coal,
copper and gold. If this takeover is successful, Inco's head
office would be moved to Vancouver.
There is no doubt that in the context of exploding commodity
prices, Chinese demand and a lack of good development
properties, the Canadian mining industry is consolidating and
will establish one world-class base metal giant. However, what
company configuration will finally be created has yet to be
decided. If the Teck takeover of Inco is successful, what will
happen to tiny-by global standards-Falconbridge and how will
the Sudbury Basin be affected by these corporate mergers?
Xstrada still owns a 19.9 percent stake in Falconbridge. Over
the past eight months, American and European competition
regulators concerned about the concentration of strategic
nickel production, have held up the Inco/Falconbridege
marriage.
Stay tuned, as the Canadian nickel-base metal saga continues, or as they say "it ain't over until the fat lady sings."
Stan Sudol is a Toronto-based communications consultant who writes extensively on mining and provincial issues.[email protected].
