The board of directors of Inco Ltd. has authorized the company's management to initiate discussions with hostile suitor Teck Cominco Ltd. to determine if the Vancouver mining company is prepared to sweeten its offer above a competing bid from Phelps Dodge Corp.
In a notice filed with securities regulators today, Inco's board recommended that shareholders reject an amended cash and stock offer from Teck that was tabled last week. Although Teck's offer, currently valued at about $87.24 a share, is financially richer than Phelps' bid, valued at about $85.66 a share, Inco's board said that the new Teck offer had a number of disadvantages The biggest problem cited by Inco's board was Teck's dual class voting structure, which gives the Vancouver Keevil family and other investors a 70 per cent voting interest in the company, although their Class A multiple voting shares account for only 2 per cent of the company's total equity.
Teck's chief executive Donald Lindsay has said the company has no plans to change its share structure.
Inco's notice said that the dual class share structure would “deprive” any Inco shareholder, who receives Teck's Class B shares under its takeover offer, “the possibility of any future control premium” should Teck itself be acquired.
Inco currently has a merger agreement with Phelps that prohibits it from soliciting any competing offers from other potential bidders. However, Inco's notice today said the terms of the agreement allow it to enter discussions with a rival bidder if its board and financial advisers determine that a competing offer “could reasonably be expected to result in a superior proposal.”
The planned negotiations with Teck come at a time when sources say Phelps is reviewing whether to increase the cash portion of its stock and cash takeover offer for Inco.
Inco recommended that shareholders approve Phelps' current offer because the combination of the Phoenix-based company's copper operations with Inco's nickel assets offer the potential of greater long term returns. The proposed merged company would derive 53 per cent of its revenue from copper and 29 per cent from nickel, two metals that are predicted to enjoy record prices for the next few years because the biggest consumer, China, is a small producer of the metals.
Under their current agreement Inco and Phelps would merge through a court approved plan of arrangement. Inco said today that it will apply to an Ontario court to hold a shareholders meeting Sept. 7 to vote on the proposed Phelps merger.
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