Teck offers more cash, fewer shares for Inco

The widely anticipated bidding war for Inco (N-T, N-N) is afoot, with Teck Cominco (TCK.B-T, TCK-N) boosting the cash portion of its bid just four days after the nickel miner failed in its attempt to acquire Falconbridge (FAL-T, FAL-N).

Teck’s revised, fully pro-rated offer amounts to $40.00 in cash and 0.5821 of a class B share; the original bid rang in at $28.00 in cash plus 0.6293 of a share. The new bid values each Inco share at $82.50, or the entire company at $16.5 billion, based on Teck’s closing shares price of $73.01 in Toronto on July 28 — the last business day before the unveiling of the new bid, which expires on Aug. 16.

Teck plans to fund the new bid out of cash on hand and a committed term loan facility. If successful, the new Teck would see its debt-to-capitalization ratio increase from 22% to up to 30%.

“We recognize that cash is highly desirable in these transaction,” Teck CEO Don Lindsay told analysts during a recent conference call to discuss the revised offer. He adds that the decrease in shares available under the proposed scheme protects existing shareholders’ very valuable currency — Teck Cominco shares.

The new offer follows Teck’s disciplined approach to the transaction, says Lindsay, noting that market speculation had Inco shares at more than $86 on Friday. He concludes that Teck’s bid of $82.50 per share is a “full and fair offer,” and that without competing bids Inco’s shares would probably be trading around $60.

While Teck says it will not be drawn into a bidding war, Lindsay would not confirm that the latest iteration was his company’s best and final offer.

“I can say its a very full offer; a very fair offer; and that we will only do what makes sense for Teck Cominco shareholders. This makes sense for Teck Cominco shareholders; I’m not sure that much else would,” he concluded.

Synergies out of a Teck-Inco union are pegged at a conservative US$150 million in the first year, with half of that to arise out of Sudbury. The company is also open to potential joint ventures in Sudbury aimed at capitalizing on previously proposed annual synergies of US$550 million.

Lindsay said that in the end, if Inco shareholders decided to choose a different direction, Teck would wish them well, and then quickly move onto the many other interesting opportunities that have been awaiting undivided attention.

Teck’s new offer includes $9.1 billion in cash (up 43% from the previous version) and up to 132.3 million shares (down 7.5%). Lindsay quashed speculation that he would consider eliminating his company’s dual share structure, instead saying that large institutional shareholders had been much more interested in a New York Stock Exchange listing, which the company now has. He said those investors understand that Teck’s B shares have outperformed Inco and Phelps’ similar shares.

Teck currently has two classes of shares the A class shares carry 100 votes, while the B class include 1 vote. Temagami Mining is the largest holder of class A shares, with a 32% stake; Temagami is in turn owned 51% by a Keevil family trust, and 49% by Japan’s Sumitomo Metal Mining.

Inco said it would advise its shareholders once it had evaluated the revised bid.

Teck’s fully permitted bid is conditional on less than 62% of Inco’s shareholders, other than itself, handing in their shares. On July 21, Teck said some 1.35 million Inco shares had been tendered to its original offer.

Teck faces competition from Phelps Dodge (PD-N), which is looking to salvage the remnants of a recently scuppered three-way deal between itself, Inco and Falconbridge, by acquiring Inco on its own.

Phelps is offering Inco shareholders $20.25 plus 0.672 of one of its own shares for each of their shares. The offer was worth $82.12, based on Phelps’ closing share price of US$81.50 in New York on July 28.

Phelps’ bid for Inco faces some resistance from major shareholders Atticus Capital and Lehman Brothers. The pair intends to vote against the proposed acquisition as it is too dilutive and debt-laden. Phelps’ shareholders will vote on the plan in September; the plan also requires approval by Investment Canada. Inco also needs at least two thirds of its shareholder’s to approve the deal.

Adding to the merger frenzy, the latest reports have Mexican mining conglomerate Grupo Mexico (GMEXICOB-M) sniffing around Phelps. Market watchers have also touted Companhia Vale do Rio Doce (RIO-N), Anglo American (AAUK-Q, AAL-L) and Rio Tinto (RTP-N, RIO-L) as potential predators for Inco. They include

Voisey’s strike

Meanwhile, Inco says it doesn’t expect a strike by some 117 unionized workers at the Voisey’s Bay nickel mine in northern Labrador to have an immediate impact on overall production of finished nickel. The two sides hade been trying to hammer out the operation’s first labour pact when talks broke down on July 27.

Voisey’s Bay began producing in September, and churned out some 23 million lbs. nickel-in-concentrate and 10 million lbs. copper-in-concentrate during the balance of the year. The mine was expected to produce around 120 million pounds of low-cost, high-grade nickel concentrates in 2006.

Inco said that the strike, by about a quarter of the mine’s 420-strong workforce, would not affect finished nickel production, as Voisey’s, which ships concentrate seasonally, had large quantities of concentrate on hand for shipping to the Sudbury and Thompson smelters.

Turning back to Falconbridge, Xstrata (XSRAF-O, XTA-L) has wasted little time, already picking up a more than 18.5 million new Falconbridge shares on the TSX — good enough to boost its stake to 24.5%. Xstrata’s bid of $62.50 per Falconbridge share expires at 8 pm (Toronto time) on Aug. 14.

The company only recently spoiled the planned nuptials of Inco and Falconbridge, with Inco failing to gain a controlling stake in its rival by the July 27 deadline.

Caught in the crossfire of that deal’s demise is LionOre Mining International (LIM-T, LMGGF-O, LOR-L). The company loses out on its deal to buy Falco’s high-grade Nikkelverk nickel refinery in Norway for US$650 million, as it was contingent on Inco acquiring Falco. The deal was designed to ally competition concerns. Inco will now pay LionOre a US$32.5-million break fee. That will come out of a US$150-million expense fee Falco must pay Inco; Falconbridge is on the hook for another US$300 million break fee should Xstrata complete its proposed acquisition.

Shares in Teck ended $1.89, or 2.6%, better at $74.90 in Toronto on July 31, giving its bid an implied value of $83.60. Phelps finished 7.2% higher at US$87.34, for a bid value of $86.55. Inco shares finished at $87.45.