Inco Ltd, the world's No 2 nickel miner, said on Tuesday it would buy rival Falconbridge Ltd for more than C$12 billion ($10.2 billion), trumping an effort by Swiss-based Xstrata Plc to take over the Canadian nickel and copper producer.
The deal, which would create the world's largest nickel producer, has been agreed to by both companies' boards. It calls for Inco to offer C$34.00 in cash, or 0.6713 of one of its shares, plus 5 Canadian cents in cash for each Falconbridge common share.
The companies expect the deal to save about $350 million a year by the end of 2007 and to be beneficial to cash flow in the first full year after the acquisition. It would be neutral to earnings in the first full year after the acquisition and significantly accretive in the second year.
The new Inco expects to reach 75 percent of savings by first quarter of 2007, with about 70 percent of the savings coming from "operational synergies and the rest from overhead."
As the world's top nickel producer, the combined company will have a pro forma estimated 2005 nickel output of 735 million pounds, forecast to climb to some one billion pounds in 2009.
Inco's Chief Executive and Chairman Scott Hand will remain in the roles following the acquisition. The new company will be called Inco Ltd and Falconbridge's Chief Executive Derek Pannell will become the new Inco's president.
"The new Inco will be stronger, larger, more diversified, with perhaps the best operations, best estimated reserves, the best growth projects, as well as a great global marketing position," Hand told analysts on a call.
"It will be a major presence in north and south America, in Asia, in the South Pacific and in Europe."
Hand said, "The new company will have a have more diversified business profile with about half of the combined pro forma 2005 revenues from nickel, one third from copper, 10 percent from aluminium and the balance from zinc, precious metals and cobalt."
The offer tops a "creeping take-over attempt" by Xstrata which took a 19.9 percent stake for C$2 billion and agreed to lift its stake to 20.01 percent, above which the shareholder is normally required to make a bid for the company. Analysts said it was unlikely that the Swiss company would make a counter offer, given the high mark-up.
"I don't think Xstrata are going to do anything apart from walk away with a check. This bid is 21 percent above their initial offer (for 20 percent of Falconbridge)," said Investec Securities analyst Nick Hatch.
"I would think it was unlikely they would counter offer." Xstrata had no comment.
Falconbridge was already one of the world's top ten companies in nickel, zinc and copper. It was created just under four months ago, when Noranda Inc acquired the 41 percent of Falconbridge that it did not already own and renamed the combined entity Falconbridge.
The Inco/Falconbridge deal comes amid recent weakness in nickel prices. The metal hit a 10-month low on Monday, and some analysts expect further weakness.
On the Toronto Stock Exchange, Inco shares reversed an initial drop to rise 75 Canadian cents, or 1.5 percent, to C$52.65, while Falconbridge jumped C$4.03, or 13 percent, to C$34.85.
In New York, Falconbridge was up $3.25 at $29.66, while shares of Inco rose $1.77 to $44.60.
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