One of the richest and most contentious bidding wars in Canadian history came to a close Wednesday after Inco Ltd.'s U.S. merger partner withdrew support for the nickel giant to raise its takeover bid for Falconbridge Ltd.
The removal of financial backing by Phelps Dodge Corp. of Arizona came after Xstrata PLC declared victory by boosting its rival, hostile all-cash bid for Falconbridge by 7 per cent with a proposal that values the copper and nickel miner at approximately $24.1-billion.
"I'm afraid this is an offer that is unbeatable," said Mick Davis, Xstrata's chief executive officer in an interview Wednesday.
Inco chairman and CEO Scott Hand refused to concede defeat however, suggesting his company's offer would give investors the greatest chance to participate in the booming metals market as part of a three-way combination with the Phoenix copper producer.
"This is our best and final offer for Falconbridge," said Mr. Hand in a statement Wednesday. "Xstrata's competing offer remains subject to a variety of conditions, including Investment Canada approval and shareholder approval, and will not be available for acceptance until at least August 14."
Inco's stock and cash offer for Falconbridge, which expires July 27, remained on the table Wednesday, and was worth 15 cents more a share than Xstrata's all-cash bid at the close of trading.
It will now be up to Falconbridge shareholders to decide whether to take Xstrata's cash for a clear profit or get behind Inco's plan to merge Falconbridge with Phelps as part of a $40-billion friendly combination, the largest takeover bid in Canadian history.
Phelps CEO Steven Whisler said Inco's bid is the most compelling offer for Falconbridge because it provides the upside potential of combining the three companies.
"This is the best and final proposal for Falconbridge we will support," he said. "It is time for Falconbridge shareholders to decide what is truly in their best interests."
Xstrata's Mr. Davis responded to the Phelps Dodge statement Thursday saying "the Phelps Dodge offer for Inco is highly uncertain."
Added Mr. Davis: "Inco's use of the so-called 'see-through price' of the Phelps Dodge offer does not therefore provide Falconbridge shareholders with any basis for assessing the value of Inco's offer for Falconbridge. Inco is the subject of two takeover offers, one from Phelps Dodge, which does not require Falconbridge to be part of the package, and one from Teck Cominco, which specifically precludes Inco acquiring Falconbridge."
The statement also said the "true value" of the Inco offer for Falconbridge is entirely conditional on the Inco share price.
"It is our firm belief that yesterday's rise in the Inco share price is directly related to the market's expectation that Inco will not be successful in acquiring Falconbridge, enabling Inco on a standalone basis to become the subject of a contested takeover. It is therefore disingenuous to suggest that Falconbridge shareholders should evaluate Inco's offer for Falconbridge on the basis of yesterday's closing share prices for Inco and Phelps Dodge," the statement said.
At the close of trading Wednesday, Inco's stock and cash bid was worth $62.65 for each Falconbridge share, not including the payment of a special cash dividend of 75 cents a share declared by Falconbridge.
Xstrata's new offer is worth $62.50, not including the dividend. Analysts said Xstrata appeared to have the edge with its all-cash bid, that would be preferred by short-term investors such as hedge funds that are now significant Falconbridge stockholders.
"I think it's over," said Orest Wowkodaw of Canaccord Adams.
"Inco and Phelps Dodge are done. They had to put their best offer on the table Monday and it wasn't enough," Mr. Wowkodaw said.
A Phelps Dodge spokesperson said Inco would be unable to boost its offer for Falconbridge even if it acted on its own.
"Any change they propose would have to have our concurrence," said Peter Faur.
