Inco Ltd. shares rose 3.1 percent after its takeover bid for Falconbridge Ltd. failed, increasing the chances that the world's second-biggest nickel producer will become a takeover target.
Falconbridge investors didn't tender enough shares for Inco's cash-and-stock offer of about C$25 billion ($22 billion) to succeed, Toronto-based Inco said today in a statement. Inco has agreed to be acquired by Phelps Dodge Corp. and is being pursued in a hostile bid by Vancouver-based Teck Cominco Ltd.
``Now, Inco is going into an auction process,'' said Ron Mayers, head of alternative strategies at Montreal-based Desjardins Securities, which owns Inco and Falconbridge shares. ``It really can't because it's tied up with Phelps Dodge, but everyone on the street knows they're for sale. Clearly, this is speculation that someone is coming in.''
Inco shares climbed above Phelps Dodge's offer of C$79.81, based on yesterday's closing price. Inco rose C$2.56 to C$86.57 in 4:10 p.m. trading on the Toronto Stock Exchange, for a market value of C$17.3 billion. Earlier they rose as high as C$87.55.
Inco plans to complete its friendly transaction with Phoenix-based Phelps Dodge, according to the statement. Possible bidders for Inco include London-based Anglo American Plc, Melbourne-based BHP Billiton Ltd. (BHP), and Rio Tinto Plc (RIO), also based in London, Mayers said.
Rio Tinto spokesman Nick Cobban declined to comment. Anglo American spokeswoman Pamela Bell didn't immediately return a telephone call, while BHP Billiton spokesman Mark Lidiard and spokeswoman Tracey Whitehead were unavailable to comment.
``While we may not have achieved the transaction that we originally hoped for, our shareholders have benefited since we began this process,'' Inco Chief Executive Officer Scott Hand said in the statement. Inco shares had gained 73 percent from Oct. 11, when Inco proposed the Falconbridge deal, he said.
Inco had to obtain more than 50 percent of Falconbridge's shares for its offer to succeed. Inco spokesman Steve Mitchell declined to say how many shares were tendered.
Inco's failure boosts prospects for Xstrata Plc (XTA), which had fought to win Falconbridge with a C$19.2 billion offer for the 80 percent of the company Xstrata didn't already own. Xstrata's offer was cash, while Inco's was a mix of cash and shares.
``We are not surprised that Inco's difficult-to-value cash and stock bid for Falconbridge failed to garner shareholder support,'' Carol Levenson, research director at Gimme Credit Publications Inc. in Chicago, said in a note today. ``We have said from the start that we thought cash would rule amid such a volatile stock price environment.''
Inco's failure to acquire Falconbridge leaves the ``next move'' to Teck Cominco, Levenson said.
Teck Cominco is examining options and doesn't want to pay too much for Inco, spokesman Doug Horswill said in an interview. The company refuses to ``be drawn into a bidding war'' for Inco, according to a statement today.
``We are going to take what our board believes is the option that generates positive value for Teck Cominco,'' he said.
Teck Cominco's cash-and-share bid was worth about C$74.10 a share, based on Teck's closing share price yesterday.
``Teck's bid is in the dust right now,'' Mayers said. ``It's not even in the running.'' That offer expires Aug. 16.
It's ``possible'' that Brazil-based Cia. Vale do Rio Doce may examine a bid for Inco, said Mark Mobius, who holds CVRD shares among the $30 billion in emerging-market equities he oversees as a managing director at Templeton Asset Management Ltd. He spoke about CVRD, the world's biggest iron-ore producer, in an interview at a conference in Toronto yesterday.
``They've got a lot of cash and they want to hedge globally,'' he said. ``They're ambitious.''
CVRD spokesman Roberto Castello Branco couldn't be reached and didn't immediately respond to an e-mail.
Under the terms of Inco's agreement, the company will receive $150 million from Falconbridge because of the failure of the deal. If Zug, Switzerland-based Xstrata's bid succeeds, Falconbridge has to pay Inco an extra $300 million.
Falconbridge shares rose 5 cents to C$62.23 in Toronto, while Phelps Dodge shares climbed $3.42, or 4.4 percent, to $81.50 in New York.
Inco was advised by Morgan Stanley, RBC Capital Markets and Goldman Sachs Group Inc. Its counsel are Sullivan & Cromwell and Osler, Hoskin & Harcourt LLP.
Falconbridge received advice from CIBC World Markets, and its counsel are McCarthy Tetrault LLP and Fried Frank Harris Shriver & Jacobson LLP.
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