Teck’s sweetener sours

Teck Cominco (TCK-A-T, TCK-N) has effectively bowed out of the heated bidding war for Inco (N-T, N-N), having failed in its ambitious attempt to raise up to $5.7 billion overnight.

Teck planned sell around 74 million of its class B shares to boost its bid to $89.00, with at least $71.20 coming in the form of cash and the remainder paid in even more of the B shares. The new offer was to be Teck’s “best and final offer for Inco.”

The proposed offering, which would have been the largest ever in Canada, was cooked up over the weekend after the emergence on Friday of a competing, all-cash bid of $86 per share from Brazilian iron ore giant Companhia Vale do Rio Doce (RIO-N).

“While we received strong support from a large number of institutional investors, in the end we could not complete the proposed equity offering on terms that made sense for Teck Cominco," said Teck CEO Don Lindsay in a prepared statement. .

Teck’s existing offer of $40.00 plus 0.5821 of one of its own shares for each share of Inco expires at midnight (Toronto time) tonight. The bid valued each Inco share at $86.46, based on Teck’s share price prior to the company’s trade halting during mid-afternoon trading in Toronto on Thursday.

Lindsay says his company will now turn its attention to several other growth opportunities available to the company, including a foray into the iron ore business, which he previously said customers on the coal side have encouraged him to consider.

Under a previous agreement with Teck, Inco’s shareholders’ rights plan also expires today.

While Inco says it remains committed to its planned cash-and-share acquisition by Phelps Dodge (PD-N), it did recently open the door talks regarding CVRD’s bid, which it said “could reasonably be expected to result in a superior proposal.”

Phelps would retain the right to match should Inco and CVRD emerge from those talks with a superior offer. Otherwise, the Arizona-based copper miner would stand to receive a US$475-million break fee from Inco.

In the meantime, Inco said it was neutral on CVRD’s bid and advised “there is no necessity for Inco shareholders to take any action with respect to the CVRD offer at this time,” noting that the offer will remain open until Sept. 28.

Phelps’ bid of $20.25 plus 0.672 of a share rings in at $88.70, based on the Arizona-based copper miner’s share price during early trading in New York on Wednesday. The bid is widely considered as too light on cash and thus trailing CVRD’s all-cash offer.

Phelps’ planned acquisition of Inco will be put to a vote by its own shareholders on Sept. 25, leaving it some time to tinker. Still, the prospect of a higher offer from Phelps is dodgy at best, with some its major shareholders already opposed to its existing bid.

Shares in Teck immediately jumped $2.49, or more than 3%, to $82.30 after they resumed trading in the late morning in Toronto on Wednesday, pushing the value of its bid to $87.91. Likewise, shares in CVRD were 3% better at US$22.52 in New York, while Phelps’ issue was off US90 at US$90.80. Shares in Inco fell $2.94 to $86.81, with investors expecting CVRD’s bid to prevail.