EDITORIAL PAGE — Bigger and bigger

Just when you thought you had heard it all, along comes another takeover bid in the always interesting mergers and acquisitions game.

The latest activity on this front is in the auto industry, with control of Chrysler on the line. We have, of course, seen it in mining, where, although the dollar figure may be smaller, the stakes remain just as high.

While some might liken the takeover to a corporate version of one-upmanship, the act of the bigger swallowing the smaller seems to have been around from the beginning of time and will likely continue to the end.

We last witnessed a rash of mergers and acquisitions in the 1980s (the decade of excess) when leveraged-buyout mania ran wild. One significant stock market crash and several years of economic stagnation can make you forget a lot.

Some memorable mining “couplings” of recent years include Dome Mines, Campbell Red Lake Mines and Placer Development (Placer Dome), Homestake and International Corona (Homestake), Cyprus Minerals and Amax (Cyprus Amax) and, from last summer, American Barrick and Lac Minerals (Barrick Gold).

The Barrick takeover of Lac, prompted by Royal Oak’s bold offer for control of the latter, propelled Barrick to a position among the world’s largest gold producers. That Barrick was poised for growth is a given; management seized the opportunity Lac presented and ran with it.

When you are big, the pressure is on to stay that way. The hunger, one can only imagine, never abates. With that thought in mind, it is interesting to note that RTZ, the world’s largest mining company, has struck a deal with Freeport-McMoRan to acquire a 10.4% interest in Freeport-McMoRan Copper & Gold (FMCG), whose assets include the huge Grasberg copper-gold mining operation in Indonesia.

The deal, worth US$450 million, will give FMCG a cash infusion for its ambitious Indonesian plans. The transaction also makes provision for RTZ to boost its stake in FMCG to just under 19% at a total cost of US$875 million.

Here at home, a merger with a different twist will see Cominco Ltd. bring Cominco Resources International into the family as a wholly owned unit. The parent has tabled a $102-million offer to acquire the 44% interest it doesn’t already own.

Spun off in the late 1980s, Cominco Resources was to be its parent’s “eye” on the international mining scene. An exploration boom was under way and Cominco the parent, perhaps a little ahead of the game, saw big developments looming on the global scene. The idea worked, to a point, but it also created problems when the time came to arrange project financing, and hence the proposal to simplify the ownership structure.

While Cominco’s offer to minority shareholders involves an exchange of shares, the US$22.8 billion Chrysler bid of Kirk Kerkorian and Lee Iacocca (a former chairman of the automaker) combines debt and equity financing. It is a throwback to the leverage-buyout days of the last decade when, to recall one of the more notorious examples of “excess”, ownership of RJR-Nabisco changed hands for a whopping US$25 billion.

Corporate growth, as pointed out by the examples above, can occur in a variety of ways. Headline-grabbing takeover proposals, it seems safe to say, are here to stay. Two banks in Japan recently announced they plan to merge to create the world’s largest bank, with combined assets of more than US$1 trillion. How long will we wait for something larger to come along?