Phelps Dodge Corp, the world's largest copper producer, agreed on Sunday night to acquire two of the biggest nickel miners in a huge deal worth US$40 billion, according to people involved in the transaction.
The deal, for Inco Ltd and Falconbridge Ltd, would create a mining behemoth that will reshape the industry as commodity prices continue to soar.
The report boosted the share prices of Inco and Falconbridge yesterday. Shares of Inco rose 4.71 euros (US$5.92), or 9.95 percent, to 52.05 euros (C$73.35, US$65.41) in Frankfurt as of 2:36pm local time, compared with Inco's closing price in Toronto of C$65.25 on Friday. Falconbridge rose 6.09 percent to 42 euros in Frankfurt. The stock closed at C$55.60 in Toronto on Friday.
The deal comes a day after the steel giant Arcelor agreed to merge with Mittal Steel in a US$33.5 billion deal. Mining and other commodity-related companies are increasingly seeking to merge to take advantage of the enormous economies of scale involved in the mining and processing of metals. Steel and nickel producers have become particularly attractive in the past year as China's appetite for the metals has grown exponentially.
The complex three-way deal among Phelps Dodge, Inco and Falconbridge was expected to be announced yesterday, people involved with the deal said.
The transaction would end a year-long battle over Inco and Falconbridge, which had agreed to merge last October, by a cadre of rivals that had made hostile offers for both. Phelps Dodge, based in Phoenix, is swooping in as the white knight to keep Inco and Falconbridge from other suitors and to satisfy a growing chorus of investors who have contended that the Inco-Falconbridge deal shortchanged its shareholders.
Under the terms of the deal, Phelps Dodge would acquire Inco, which would in turn sweeten its offer for Falconbridge and complete that merger. Inco and Falconbridge are based in Toronto.
For Phelps Dodge, the transaction would diversify its business and catapult it into the one of the largest diversified mining companies in the world.
The chain of events that set off the deal stems largely from a decision in August of last year by Xstrata, a Swiss-based mining company with extensive interests in coal, to buy a stake in Falconbridge from Brascan, a Toronto holding company that was seeking to end its long association with natural resource companies to concentrate on commercial real estate and electrical generation.
At the time, Xstrata's chief executive made it clear that acquiring more of Falconbridge was on his agenda. However, a condition of the sale made a quick move to control Falconbridge potentially costly. Xstrata had agreed that if, for the following nine months, it acquired Falconbridge shares at any price above C$28 a share, it would also retroactively pay the premium to Brascan.
While Xstrata waited for the nine-month Brascan bonus period to expire, Inco, Canada's nickel mining giant, moved in and announced last October that it would buy Falconbridge for C$12 billion in cash and stock under a friendly bid. While that represented a 21 percent premium over what Xstrata paid Falconbridge, many investors complained that the offer was insufficient.
Completion of that deal, however, was delayed by anti-trust reviews in Europe and the US.
Last month, just before the Brascan-Xstrata arrangement came to an end, Inco boosted its offer to C$19.6 billion from its original C$12 billion.
But the increased bid failed to deter Xstrata.
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