Stymied in its offer to buy back 90% of its Class VBN shares (NV-T),
Originally, Inco offered to buy the series for $7.50 in cash plus 0.45 of a purchase warrant exercisable at $36, a significant premium over the $27.10 closing price of Inco common shares on Sept. 5, 2000, the day before the announcement.
The Voisey’s Bay Nickel shares were created in August 1996 for Inco’s takeover of Diamond Fields Resources, the company that discovered the Voisey’s Bay nickel deposits in Labrador. The 25.9 million Class VBN shares that were issued were meant to provide a vehicle for Diamond Fields shareholders to retain a direct interest in the now-stalled project. VBN shareholders are entitled to receive 25% of the unallocated cash flow from the operations of Voisey’s Bay Nickel, the Inco subsidiary created to operate the project.
The VBN shares rose as high as $43.75 in 1996, but over the past year they have ranged from $6.15 to $14.50. They closed at $9 on Sept. 5, the day before the announcement, and were trading at $10.25 at presstime.
Inco says it wants to retire the shares in order to simplify its capital structure and eliminate a “conflict of interest” between its common shareholders and the holders of its VBN shares.
The buy-back offer required that 90% of the shares be tendered. However, by the initial expiry date of Oct. 16, only 76% of the VBN shares had been tendered. Among those accepting the offer was
Inco then extended the expiry date to Oct. 27 but still failed to pass the 90% threshhold.
Among the holdouts was a group of New York-based investors that described the offer as “unfair” and urged holders of VBN shares not to tender them to the nickel giant (T.N.M., Oct. 16-22/00). The group stated that Inco “is counting on long-suffering VBN shareholders to tender their shares for a fraction of their potential value in anticipation of renewed negotiations to develop the massive Labrador project.”
With VBN shareholders being entitled to 80% of the dividend awarded to common shareholders, the dissidents have also asked why Inco hasn’t restored its common dividends, as it has returned to profitability.
In February 1999, Inco stopped paying quarterly dividends on its common shares in a move the company described as part of its “other actions to maintain its financial flexibility in the commodity-price environment prevailing at that time.”
As a result, no cash dividends were paid on VBN shares in 1999 or to date in 2000. In 1997 and 1998, VBN shareholders received dividends of US32 and US8, respectively.
Inco’s net earnings during the first nine months of 2000 were US$322 million ($1.53 per fully diluted common share) compared with a net loss of US$10 million (17 per share) during the corresponding period last year. The company says it periodically reviews the possibility of restoring common-share dividends.
Twice rebuffed in its buyout offer, Inco then announced it would hold a special meeting of shareholders on Nov. 28, 2000, in Toronto, to vote on amendments to the terms of the VBN shares.
The proposed amendments would allow Inco to redeem each of its Class VBN shares for the same $7.50 cash amount and 0.45 fraction of an Inco common share purchase warrant. The sweetener is a reduction in the strike price of a whole warrant to $30 from $36.
These proposed amendments will only require the approval of two-thirds of the votes cast at the meeting by holders of the Class VBN shares (voting separately) and all of the company’s voting securities, representing the Class VBN shares, common shares and Series E preferred shares (voting together).
Inco will fund the $7.50-per-share payment with $150 million in cash on hand and $45 million from borrowings under available credit lines.
Inco has retained investment banker N M Rothschild & Sons to provide an independent, fair-market value of the VBN shares, which Rothschild estimates to be $6.50-12 per share. Rothschild received fees of US$1.1 million for its September and October valuation and fairness opinions.
Formal discussions between Inco and the provincial government last took place in January, but the company says it has maintained informal contact with the government’s Department of Mines and Energy.
In its circular dated Oct. 27, 2000, Inco states that while Newfoundland Premier Brian Tobin announced his resignation on Oct. 16, 2000, it “has not had any effect on restarting any negotiations nor, to the company’s knowledge, has the province changed its requirements relating to any project to develop the Voisey’s Bay deposit.”
At Oct. 23, there were, issued and outstanding, 181.7 million Inco common shares, 25.9 million Class VBN shares and 9.4 million series E preferred shares.
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