The Canadian government lifted a key shareholder concern when it granted Investment Canada approval for Xstrata PLC's takeover of Falconbridge Ltd., adding momentum to the Anglo-Swiss miner's bid.
The approval removed any regulatory uncertainty for Falconbridge shareholders trying to weigh the Xstrata offer against a friendly bid from Inco Ltd. that is set to expire Thursday night.
With time running out for Inco's offer for Falconbridge, the heads of both mining companies were in New York Tuesday in a last-ditch effort to win over major shareholders.
On the surface, Inco chairman and chief executive officer Scott Hand and Falconbridge CEO Derek Pannell were extremely confident in their presentations.
Inco's offer for Falconbridge is far superior to the hostile bid from Xstrata PLC, the executives insisted.
Inco's stock-and-cash bid was worth about $2 more than Xstrata's all-cash offer of $62.50 a share, they pointed out.
Only the Inco offer will allow investors to continue to participate in the red-hot metals market as part of a three-way mega-merger with Phelps Dodge Corp., they added. That combination will create the world's biggest nickel producer and second-largest copper miner.
But at least one hedge fund manager who met with both Mr. Hand and Mr. Pannell detected a note of resignation in the executives.
“They both were hopeful and optimistic, but deep down it seemed like they both knew Xstrata was going to win,” he said.
While the New York meeting was being held, Xstrata was given notice from Industry Canada Minister Maxime Bernier that its acquisition had been approved under the Investment Canada Act.
Under Canadian takeover rules, a foreign company must show that any acquisition over $250-million is of “net benefit” to Canada.
Investment Canada has never rejected a foreign takeover and approval for Xstrata's hostile all-cash bid was widely expected.
However, it was unclear whether the ruling would come before Inco's friendly stock-and-cash offer expires.
“I am pleased that Xstrata has been able to demonstrate the benefits to Canada of our successful acquisition of Falconbridge,” chief executive officer Mick Davis said in a statement.
Before the announcement, both Inco and Falconbridge had held up Xstrata's lack of government approval as a serious cause for concern and a major reason for Falconbridge investors to tender to Inco's bid. The Falconbridge board noted the condition when it reaffirmed support for Inco's offer on Monday.
However, in meetings with investors this week at the Four Seasons in New York, Mr. Hand conceded that approvals from both Investment Canada and Xstrata shareholders were likely.
With Ottawa's go-ahead, it will now be up to Falconbridge shareholders to decide whether to tender to Inco's bid by tomorrow or hold out for Xstrata's all-cash bid, which expires Aug. 14.
Inco shares added another 24 cents to close at $82.69 on the Toronto Stock Exchange Tuesday, pegging the value of Inco's offer for Falconbridge at $64.54 a share.
However, Falconbridge's stock did not reflect the premium, slipping 10 cents to $62.35.
Both Mr. Hand and Mr. Pannell rejected the notion that Inco's rising share price was due to speculation that Inco itself would become the subject of a potential bidding war.
“They both made the point that [this] was a very reasonable price for Inco to be trading at and they're very upset by the claims that the only reason Inco is there is on takeover speculation,” said the hedge fund manager who intends to tender his Falconbridge shares to the Xstrata offer.
Xstrata spokesman Marc Gonsalves said the ruling served as a strong rebuttal to Inco's public criticisms of the Xstrata offer.
“I think all of those don't add up to a row of beans next to the hard cash that Xstrata has put on the table and which people are certain to get as soon as we have received our shareholders' approval,” he said.
In its application to Investment Canada, Xstrata said it will establish its global nickel business in Toronto and has committed to funding a Canadian research-and-development site. It has also promised not to lay off any Falconbridge employees for three years.
Inco is also facing a hostile takeover bid from Vancouver's Teck Cominco. At the close of trading Tuesday, Teck's offer was worth $72 an Inco share compared with $81.17 for the Phelps bid.
Teck's CEO Don Lindsay said during a conference call with analysts that getting in an all-out bidding war for Inco is “not in the DNA of the company.” He said Teck is looking at smaller alternative acquisitions if it fails to win Inco.
