Switzerland's Xstrata PLC made a hostile $16.1-billion all-cash takeover bid for Falconbridge Ltd. on Wednesday, just four days after Inco Ltd. sweetened its offer for the Canadian miner.
Xstrata is offering $52.50 a share in cash for the 80 per cent of Falconbridge it doesn't already own, a 12.3-per-cent premium to Inco's bid. That values the company at $20-billion, about $1-billion more than the weekend offer from Inco. If successful, it would be the largest global mining takeover ever.
Falconbridge shares rose nearly 3 per cent to $55.60 in Toronto, suggesting investors are expecting a counter offer for the copper-and-nickel miner. In releases Wednesday, Falconbridge deemed Xstrata's offer inadequate while the union representing Falconbridge workers in Sudbury called it a “nightmare.”
Xstrata said the union would create the world's fifth-largest miner and result in annual cost savings of about $120-million (U.S.). Mick Davis, Xstrata's chief executive officer, said his cash-rich company is confident it will gain control of Falconbridge.
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“We have every intention of succeeding,” he said on a conference call, adding that he doesn't expect regulators will hold up the deal. He wouldn't comment on what Xstrata would do if Inco upped its offer.
Falconbridge chief executive Derek Pannell, meantime, spurned Xstrata's overture.
“I don't believe that the $52.50 cash price per share proposed by Xstrata reflects the full and fair value of Falconbridge shares, given its current earnings prospects,” he said in a statement.
“The proposed offer is conditional and does not take into account the unique and real synergies that are available from the Inco/Falconbridge combination.”
He said his board would consider the bid and issue a formal reply.
Separately, the United Steelworkers' union representing Falconbridge's Sudbury employees called the potential union a “nightmare come true,” saying the combination would make the Sudbury workplace “a tiny cog in a huge Swiss machine - a machine with a worrisome history and no commitment to Sudbury.”
The union continues to support an Inco-Falconbridge combination.
Xstrata spokesman Marc Gonsalves said in an interview that he expects much fewer job cuts from the Swiss company's bid than what would result from an Inco-Falconbridge combination.
Part of the rationale for Inco's union with Falconbridge has always been cost savings associated with the companies' operations in Sudbury. On Monday, Inco upped its estimate for potential savings to $390-million (U.S.) a year.
Xstrata said its cost savings will come from synergies at the companies' Latin American copper operations.
“Given the immense value inherent in the combination of our copper businesses in Latin America, Xstrata is the natural partner for Falconbridge,” Xstrata said in a release.
In order for the deal to succeed, Xstrata would need approval from its shareholders, approval from 47 per cent of Falconbridge shareholders, along with nods from regulators and Industry Canada.
Because Xstrata already bought 19.8 per cent of Falconbridge at $28 a share last summer, that cuts its total weighted average acquisition price and gives the Swiss company a $4.74-a-share advantage over Inco's offer.
The combination of Xstrata and Falconbridge would create one of the world's largest producers of copper, nickel, thermal and metallurgical coal, zinc, together with ferroalloys.
The offer, which is open until July 7, comes days after Inco Ltd. boosted its Falconbridge bid to about $51.17 (Canadian) a share. That offer, originally made in October, has been held up by regulatory probes in Europe and the U.S.
Speculation about Xstrata's bid has been widely circulating for months. The Zug, Switzerland-based company is Falconbridge's largest shareholder.
Inco's Saturday bid also included an agreement from Falconbridge to hike to $450-million (U.S.) from $320-million the penalty it would pay Inco if the friendly deal is not completed.
That measure was aimed at making counter-offers, like Xstrata's expected bid, too expensive to succeed.
Xstrata's bid adds to the complications Inco's bid has faced.
Last week, Vancouver-based Teck made an unsolicited $17.8-billion (Canadian) takeover bid for Inco, but only on the condition that Inco abandon the deal with Falconbridge.
With files from Canadian Press.
