TORONTO — Inco Ltd. has agreed to negotiate with CVRD about the Brazilian company's $19.87-billion cash takeover offer, dealing a new blow to U.S. suitor Phelps Dodge Corp.
The Toronto-based nickel giant continues to support a $17.5-billion cash-and-stock offer from Phelps, it said, but acknowledged the CVRD offer “could reasonably be expected to result in a ‘superior proposal' for purposes of the combination agreement (with Phelps Dodge).”
“This determination allows Inco to engage in discussions and negotiations with CVRD . . . and, accordingly, the board has authorized Inco's senior management and its advisers to engage in such discussions and negotiations,” the miner stated.
Inco also reiterated its rejection of Teck Cominco Ltd.'s $18.1-billion cash-and-stock bid, noting that, “on Aug. 8, Teck announced that it had no plans to enter into discussions or negotiations with Inco regarding the Teck offer.”
CVRD was not immediately available for comment Tuesday, although in announcing its offer last week chief executive Roger Agnelli had said he was hoping to meet with Inco's management to discuss the proposal.
Inco's recommendation marks the second time the miner has extended an olive branch to a hostile suitor, and could become the latest setback to Phelps's bid, which is facing some shareholder dissent and awaiting regulatory approvals.
Industry analysts had expected Phelps to raise its bid after Teck Cominco put forth a sweetened bid July 31, but the U.S. company has yet to make a move.
Larry Smith, an analyst with Blackmont Capital, said the Phelps Dodge bid is currently the weakest of the three offers, while CVRD is in the strongest position “because it's cash.”
“The board of Inco can't abandon Phelps Dodge because they've got binding agreements in place, they've got support agreements, etc., suggesting they have to continue the relationship with Phelps,” Mr. Smith said.
“But they have an obligation to get the highest price possible, and if that means talking to other parties, that's what they're going to do.”
Teck Cominco has repeatedly said it won't get drawn into a bidding war or overpay for the asset, but had no comment on Inco's recommendation Tuesday. A Phelps Dodge spokesman declined to comment.
Analysts expect Teck to extend its bid, set to expire Wednesday, allowing the company more time to figure out its next move.
Phelps shareholders, for their part, will get a chance to vote on the proposed takeover of Inco on Sept. 25.
“My hunch is that Phelps will wait and see what happens at the Inco shareholders meeting, which is going to occur on Sept. 7, and I think it's highly likely that Inco shareholders will not vote for the Phelps Dodge bid,” he said, adding that Phelps would then walk away with a $125-million break fee and “it will be done.”
The CVRD offer is open for acceptance until Sept. 28 and requires several regulatory approvals — including antitrust clearances and the green light from Investment Canada.
In a circular mailed to shareholders Monday, CVRD said it intends to delist Inco from the stock market after a takeover and “conduct a detailed review of Inco and its assets, operations, management and personnel to determine how best to integrate the operations and management of Inco into the operations and management of CVRD.”
CVRD also revealed that Inco's financial advisers contacted it after Teck made its initial bid in May “to determine if CVRD would be interested in considering a friendly merger transaction with Inco.”
But before CVRD could get access to Inco's data room, the company was told Inco was no longer interested in teaming up with it, and the deal with Phelps Dodge was announced.
The Phelps bid began as a friendly three-way merger that included Falconbridge Ltd., but that Canadian miner has just been acquired by Switzerland's Xstrata PLC, a major global coal producer and miner, after Inco's offer failed to rally enough shareholder support.
On the Toronto stock market near midday Tuesday, Inco shares were trading up 4 cents to $88.84, while Teck Cominco was at $80.22, up $1.22. Phelps shares, meanwhile, rose 20 cents to $89.54 (U.S.) and CVRD was unchanged at $22.01 on the New York Stock Exchange.
