Mining Firm to Buy 2 Canadian Rivals

Phelps Dodge Corp. said Monday that it was buying Canadian mining companies Inco Ltd. and Falconbridge Ltd. for about $40 billion in the hope that global demand would continue to support surging metal prices.

The deal could resolve what had been a four-way bidding war and would create a dominant copper and nickel producer in the North American market. The company would be the world’s largest nickel producer and the largest publicly traded copper producer. Copper prices have quadrupled in the last five years.

If the offer is approved, Phoenix-based Phelps Dodge will have thwarted two other bids. Inco originally announced its deal to buy Falconbridge in October. As the companies sought regulatory approval, both received alternative bids: Vancouver, Canada-based Teck Cominco Ltd.’s bid for Inco and Swiss mining company Xstrata’s for Falconbridge.

The offer from Phelps, which has received board approval from all three companies, puts a premium on the prices of both Inco and Falconbridge.

Demand for commodities, particularly from rapidly industrializing China, has steeply pushed up prices for metals such as nickel, aluminum, zinc and copper in the first half of the year, generating a growing stream of cash for mining and metal companies.

The combined company, to be called Phelps Dodge Inco Corp., would have operations in 40 countries and employ about 40,000 people.

Inco shares jumped $5.95, or 10%, to $64.21, Falconbridge shares gained $2.50, or 5%, to $51.80 and Phelps Dodge shares dropped $6.72, or 8%, to $76.23.

“We’re extremely excited about the powerhouse we’re creating,” Phelps Dodge Chief Executive J. Steven Whisler said. Whisler will be CEO of the combined company if the deal receives final approval.

Under terms of the deal, Inco shareholders would receive 0.672 share of Phelps Dodge stock plus $15.59 a share in cash for each share of Inco stock, representing a premium of 23% over Inco’s price Friday.

Inco in turn would increase its offer for Falconbridge to $15.59 from $11.14 and the exchange ratio to 0.557 share of Inco, from 0.524 share, for each share of Falconbridge.

Phelps said Monday that it did not anticipate any major regulatory hurdles for the deal. It is expected to close in September with Phelps Dodge shareholders owning about 40% of the combined company, Inco shareholders with 31% and Falconbridge holders with 29%.

Phelps, founded 172 years ago, said the deal would result in cost savings of $900 million a year to be realized by 2008.