Brazil's CVRD, the world's largest iron ore miner, said on Friday that it would offer C$17.2 billion (US$15.3 billion) plus debt assumption for Toronto-based miner Inco Ltd in a bid to become the planet's largest nickel producer.
The cash offer of C$86 per share (US$76.54) by Companhia Vale do Rio Doce SA should be more attractive than bids by US-based copper miner Phelps Dodge Corp and Canada's Teck Cominco Ltd because the other bids involve both stock and cash, CVRD chief executive Roger Agnelli said.
"We are offering cash for 100 percent of the company," Agnelli told reporters in Rio de Janeiro. "We believe our offer is superior to the others."
CVRD would also assume US$1.9 billion of Inco debt. If the deal is accepted, CVRD would become the largest producer of nickel -- used primarily to make stainless steel and batteries -- as well as one of the three largest diversified mining companies in the world, with positions in iron ore, pellets, bauxite, alumina, manganese and ferroalloys.
Inco, with last year's earnings of US$836 million on US$4.5 billion in revenue, is the world's second-largest producer of nickel after Russia's Norilsk Nickel. The Canadian company also mines and processes copper, gold, cobalt and platinum.
Analysts said CVRD appeared to take the lead in the bidding for Inco with its offer.
"Cash is very important in these deals and CVRD looks to be in the pole position," said John Redstone, an analyst with Dejardins Securities.
The deal could also lead to further consolidation in the worldwide mining industry because 17 of the world's largest miners have US$20 billion of cash on their balance sheets, said Robert Mantse, senior vice president in Dominion Bond Rating Service's global metal and mining group.
"There will be another round of consolidation in the next 12 to 18 months," he said.
Because CVRD would take on much more debt, Moody's Investors Service put CVRD's local-currency credit under review for possible downgrade and shifted its review on the company's foreign-currency ratings to "uncertain" from "possible upgrade."
CVRD said it will make a formal offer for Inco tomorrow, and will complete the deal if Inco shareholders tender at least two-thirds of the company's outstanding shares. CVRD has not spoken to Inco about the deal.
Agnelli said the acquisition makes sense given bullish international demand for iron ore and nickel.
"The current cycle of high prices for commodities is not over," Agnelli said. "Demand continues strong for both iron ore and nickel and we believe it will remain strong at least through 2010."
On Monday, Inco said a bid of C$82.50 per share in cash and stock by Vancouver-based Teck Cominco was not superior to a prior offer by Phelps Dodge. It advised shareholders to reject Teck Cominco's bid.
Agnelli acknowledged a bidding war could now take place for Inco if the other mining companies raise their offers.