A $40-million (U.S.) investment in Inco Ltd. has intensified speculation that the Canadian nickel producer is a potential takeover target.
The purchase makes Winnipeg's Coastal Investment Inc. - run by Gordon Flatt, brother of Brascan's Bruce Flatt - the single-biggest owner of Inco's series E preferred shares, the market's largest preferred issue. Coastal now owns 1.12 million shares, or 12 per cent.
The shares have been a hot commodity recently because Inco has to buy them back at a premium if the company is acquired.
Coastal's disclosure grabbed a lot of attention on Bay Street because Bruce Flatt, currently chief executive officer of Brookfield Properties Corp., will be in overall charge of the Brascan group's mining strategy next year, when he replaces Jack Cockwell as Brascan CEO. Later this month, he will become a director of Brascan-controlled Noranda Inc., which is thought to be among Inco's potential suitors.
Bruce Flatt said he was unaware of Coastal's Inco investment until it was disclosed Tuesday, and that he has no formal or informal links with Coastal. Gordon Flatt said: "Bruce has never had any association with our company. The only association is by blood."
For his part, Gordon Flatt said he has no association with any of the Brascan companies, though he was an officer of Unicorp Inc., one of the lesser investments in the group, until last spring. Coastal, though, counts Brascan and Brookfield among its investments.
Gordon Flatt said Coastal has owned Inco preferred shares for some time and began to build its position in December because it was attracted by the shares' high yield of more than 8 per cent and relatively low risk. Since then, the shares have gone to just above $44 from about $38.
A Bay Street preferred-share trader said arbitrageurs from around the world have been piling into the shares in anticipation of a takeover. The common shares also have been rising, and closed up $2.30 (Canadian) Thursday at $28.25, marking one of the stock's biggest one-day gains. So far this year, it has gained 10.5 per cent.
Traders said the Coastal disclosure - a huge bet for a family-controlled company - helped to propel the Inco preferred and common shares. The takeover rumours intensified Thursday morning when WMC Ltd. of Australia, the No. 3 nickel producer after Inco, said it would like to merge its nickel operations with those of a rival, such as Inco or Billiton PLC of London.
"We will look at every possibility to try and make sure we can get better rationality in the marketplace," Hugh Morgan, WMC's CEO, told Bloomberg News. "We will certainly be looking at and talking with ... anybody in the industry."
Some analysts and traders said they believed WMC would consider buying Inco, perhaps with a partner. Anglo American and RTZ are thought to be among the other possible Inco suitors.
Bruce Flatt said he does not know whether Noranda, which controls nickel maker Falconbridge Ltd., is interested in buying all or part of Inco. "I have attended only one Noranda board meeting," he said.
But in an interview late last year with The Globe and Mail's ROB Magazine, he said that Noranda was due for some attention after it and almost every other mining group were left behind in the great tech rush. "We want to build it into a great company," he said. "It won't be sold."
Last year, Noranda lost a bidding war for Rio Algom Ltd. In the mid-1990s, Falconbridge tried to buy the nickel-rich Voisey's Bay deposit in Labrador.
Inco won Voisey's Bay but has not developed the site because of a political stalemate with the Newfoundland government.
The Inco series E preferred shares were issued in 1996 to raise money to help pay for Voisey's Bay. They have voting rights and are convertible into Inco common shares at a ratio of 1.19 common shares for each preferred.
The preferred shares mature in 2006, and under certain conditions, have to be repurchased by the company at a slight premium to their $50 (U.S.) face value if Inco is bought.