Falconbridge extinguishes Xstrata’s creeping takeover (September 23, 2005)

Facing a creeping takeover by Swiss-based miner Xstrata (XTA-L, XSRAF-O), Falconbridge (FAL.LV-T, FAL-N) has adopted a shareholder rights plan to prevent a progressive increase in ownership without an offer to all shareholders.

The move comes just weeks after Xstrata agreed to buy some 370,000 additional Falconbridge shares from a non-Canadian investor to boost its stake to 20.01%. The mining giant originally acquired a 19.9% stake in Falconbridge from asset-management company Brascan (BNN-T) for around $2 billion in mid-August.

At the time, Xstrata CEO Mick Davis said his company did not intend to remain as a long-term shareholder with a minority interest.

Under Falco’s new plan, rights holders would be able to buy Falco shares at half the going rate during any attempt to acquire (or announcement of an offer for) more than 20% of Falco’s shares other than by an offer to all shareholders, or with the board approval. Under the plan, a permitted bid must remain open for at least 60 days, and must have at least 50% of the company’s shares tendered to it to go through. In that event the offer must be extended for 10 days to allow for other shareholders to tender.

Falconbridge says that Xstrata’s existing 20.01% stake in the company will be grandfathered under the plan but that Xstrata cannot raise its stake except under certain circumstances.

“Some of our shareholders have voiced concerns with the possibility of a creeping takeover,” said Falco CEO Derek Pannell in a prepared statement. “The plan will give the board of directors an effective tool in responding to an attempt to acquire control through a progressive increase in ownership without an offer to all shareholders. If the actions of a bidder resulted in the acquisition of Falconbridge, we would want to make sure shareholders are treated fairly.”

Falconbridge shareholders must now approve their board’s plan within six months.

Falconbridge has also retained CIBC World Markets and McCarthy Tetrault as advisers to evaluate and review of “all value creation opportunities.”

Privately owned Swiss commodity trader Glencore International owns 40% of Xstrata.

Shares in Falconbridge were 95, or 3.3%, higher at $29.70 in late afternoon trading in Toronto on Sept. 23.