Teck snaps Inco’s olive branch (August 14, 2006)

Teck Cominco (TCK.B-T, TCK-N) has politely declined Inco’s (N-T, N-N) invitation to the negotiating table, instead preferring to stick to its game plan and existing cash-and-share takeover bid for the nickel miner.

In a terse press release on Aug. 8, Teck said “it is not in, and has no plans to enter into, discussions or negotiations with Inco regarding Teck Cominco’s offer to acquire all of the outstanding shares of Inco.”

“We believe that our offer for Inco is clearly superior to the highly conditional Phelps Dodge offer,” said Teck CEO Don Lindsay. He added that his company’s bid includes almost twice as much cash as the Phelps Dodge (PD-N) offer and that Phelps’ scheme still requires regulatory and shareholder approval.

Lindsay also took the opportunity to urge Inco shareholders to tender their shares on Aug. 16. Under an earlier agreement with Teck, Inco’s shareholders’ rights plan expires on Aug. 16; Teck’s bid expires the same day.

Inco recently rejected Teck’s sweetened offer, which now includes $40.00 in cash plus 0.5821 of a class B share, concluding that it is “not a superior proposal” to Phelps’, but conceding that it “could reasonably be expected to result in a superior proposal.”

The designation meant that under Inco’s agreement with Phelps, Inco could pursue talks with Teck aimed at hammering out a superior offer without jeopardizing its planned acquisition by Phelps, as Teck’s bid was not solicited. Phelps would retain the right to match a superior offer should one emerge from those talks. Otherwise, the Arizona-based copper miner would stand to receive a US$475-million break fee from Inco.

In recommending that shareholders reject the offer, Inco warned that that Teck’s dual share structure could be used to preclude class B holders from being heard in future takeovers. The company’s class A shares carry 100 votes and represent a 70% voting interest, while accounting for only 2% of the total economic interest in the equity. Class B shares are accompanied by one vote.

Inco’s olive branch to Teck puts pressure on Phelps to bolster its existing offer of $20.25 accompanied by 0.672 of one of its own shares. Several media reports suggest Phelps is currently gearing up to boost the cash portion of its offer. To do so, Phelps would face stiff opposition from some major shareholders that already plan to vote against the company’s existing offer, calling it too dilutive and debt-laden.

Inco was slated to ask the Ontario Superior Court of Justice to approve its merger plan with Phelps on Aug. 10. The nickel miner would then put the plan to a shareholder vote on Sept. 7.

Teck’s offer valued each Inco share at $87.24, and Phelps’ at $86.10, based on each company’s closing share price on Aug. 4 — the last business day before the recent news. Teck’s lead edged a few pennies higher after shooting down the idea of talks with its prey on Aug. 8. Still, both offers lagged Inco’s share price of $87.61, as investors anticipate a still sweeter offer.