Editorial: Teck bid for Inco shakes up industry

Noranda’s friendly takeover of Falconbridge last year had felt inevitable to most of us for years before its announcement.

The subsequent bid in October by Inco to take over cross-town rival Falco had looked good on paper for decades, but it was still a genuine surprise when it was unveiled as a reality.

But Teck Cominco’s bid this month to smash apart the Inco-Falco deal and swallow Inco whole for $17.8 billion in cash and shares has sent shock waves through the entire Canadian mining community, for a variety of reasons.

First off is the unfamiliar new personality Teck Cominco is showing with its hostile bid: one of in-your-face, high-stakes aggression — albeit muted somewhat by new president Donald Lindsay’s soft-spoken, golly-gee personal style.

Under the incredibly successful, previous four-decade leadership of Norm Keevil Sr. and Norm Keevil Jr., Teck was more often positioned as a partner of choice, both as a low-key member in consortia for large mining projects globally, and as a kind of paternal figure to Canada’s juniors for more grassroots project at home.

In recent decades, Teck has had perhaps the strongest bonds of any senior to the junior sector, both its promoters and its technical personnel. By lending support to the juniors during the tough times, Teck ensured it would be approached first by juniors with great opportunities when better days arrived.

Indeed, this hostile bid represents the end of the storied Keevil era for Teck, and the beginning of its evolution towards a more institutional stance, guided less by the personalities and imaginations of individuals, and more by the dry imperatives of institutional investors.

Another surprising angle to the bid is the degree to which, under Lindsay’s leadership, Teck is now prepared to debase the value of its shares over the short term in order to achieve a wider strategic vision that may take a full commodity cycle to pay off. Teck’s shares have dropped 13% since the bid was announced, and management hasn’t flinched once publicly.

By contrast, in their glory days, Keevils Sr. and Jr. and their close-knit management teams time and again showed their shrewdness by manoeuvring Teck into a position of key player very early on in the development of several high-profile mineral deposits, including Hemlo, Voisey’s Bay, Antamina and the coal fields of southeastern British Columbia. Those deals always seemed to be made with profits and share value foremost in mind; if assets could be bought on the cheap during a cyclical low, Teck would be there with an open wallet, and if a buyer ever appeared with good offer for any asset, Teck would would have no qualms about selling out quickly and redeploying the profits elsewhere.

Another surprise is Inco’s sudden weakness as an industry driver. Even before Teck’s intrusion, Inco’s bid had been severely hampered by regulatory delays and a Falconbridge share price that rose 12-14% above Inco’s offer in anticipation of a rival bid or sweetened offer.

Inco management was forced this week to respond with an extra $5 for Falconbridge shareholders, but paradoxically, that’s only making Teck’s offer even more attractive to Inco’s shareholders.

Teck has a long history of accomplishing its goals, so our gut feeling is that its audacious bid for Inco will succeed.

That, of course, will bring yet another phase of uncertainty into the lives of Falconbridge’s employees and shareholders, and it will open the door wide for deal-junkie Xstrata to bid for the 80% of Falco it doesn’t already own.

However, we have yet to hear from the world’s three biggest base metal miners: BHP Billiton, Rio Tinto and Anglo American. These sharks are still circling quietly above the minnows of Sudbury, and it may soon be feeding time again.