New Suitor May Win Nickel Mining Firm Inco

From Reuters

The world’s largest producer of iron ore could trump two other players in the race for Canadian nickel giant Inco Ltd. with an all-cash offer worth C$19.9 billion ($17.6 billion), analysts said Friday.

Companhia Vale do Rio Doce of Brazil launched its unsolicited bid of C$86 a share Friday.

That’s more than double the cash that Canadian zinc miner Teck Cominco Ltd. has offered in its cash-and-stock bid and more than four times the cash portion of a competing offer from U.S. copper miner Phelps Dodge Corp.

“I think it’s a done deal,” said David Davidson, an analyst with Paradigm Capital. “Not that Teck and Phelps can’t come back with higher offers. The problem is CVRD is a very large competitor.”


CVRD is cash rich and has been on a buying spree in recent years to diversify its production.

Teck is offering a portion of its stock and C$40 in cash. Phelps is offering a portion of its stock and C$20.25 in cash.

Based on Friday’s closing prices, Teck’s offer is worth C$86.04 a share and Phelps’ offer is worth C$88.23 a share, putting the total value of each bid above C$19 billion.

Investors tend to prefer all-cash bids because they are simpler and not affected by market fluctuations. On Friday, Teck shares jumped 3.9% and Phelps rose 2% on the likelihood that their offers would lose to CVRD’s.


Inco’s stock closed above all offers at C$89.08 in Toronto.

“A lot of the guys that own Inco want cash,” said Kerry Smith, an analyst with Haywood Securities. Smith called CVRD’s offer a good bid but said, “Obviously the time delay is a little problematic.”

CVRD expects to start its formal offer Monday, and its bid will be open for 45 days from then. It will need regulatory approvals from Canada, the United States and Europe, as well as a shareholder vote.

Teck has cleared all regulatory hurdles, and its offer expires Wednesday.


Phelps has won approval from U.S. regulators and is waiting for clearance from Canadian and European authorities.

“There is the risk that [CVRD] doesn’t get regulatory approval,” Davidson said. “I think it would be pretty attractive for a lot of shareholders to run that risk for all cash.”

Inco, which declined to comment on CVRD’s bid, has signed a support agreement with Phelps, but that doesn’t preclude its board from backing an offer it deems superior.

“I think what probably happens now is that Inco and CVRD do a friendly deal” at C$90, Smith said. “I think [CVRD] will pay a little more to do a friendly deal, and then the shareholders will still have to decide.”


Analysts said it would be difficult for Teck and Phelps to beat the all-cash bid and pointed to the bidding war that erupted between Inco and Swiss mining company Xstrata for Canadian rival Falconbridge. In the end, Inco’s cash-and-stock offer lost to Xstrata’s lower all-cash bid.

Teck is mulling over its options and said it would “not be drawn into an expensive bidding war for Inco.”

“We have a pile of different options, and we are just evaluating them,” Teck spokesman Doug Horswill said.

Teck could extend its bid past Wednesday without changing its offer, and it is seen to have room to add a few dollars but not enough to trump C$86 a share.


“Teck should make genuine effort to come back because at the end of the day it is a well-liked company,” said Terence Ortslan, an analyst with TSO & Associates. “It has good assets. I think it will make an attempt to come back.”

He said it would be difficult for Phelps to compete, partly because some of its shareholders opposed the offer.

Atticus Capital, a hedge fund that owns 8% of Phelps, said Friday that it opposed the bid for Inco, contending that Phelps should be sold instead.

A spokesman at Phelps declined to comment.