Teck Cominco Ltd said on Monday it will buy Inco Ltd for C$17.8 billion ($16 billion) in a deal that will produce a mining mammoth, but only if Inco nixes its plan to merge with Falconbridge Ltd.
The news sent shares of Inco soaring 15 percent, or C$9.62, to C$75.00 in early trading on the TSE on Monday, and up 14 percent, or $8.27, to $67.35 on the New York Stock Exchange.
The C$78.50-a-share unsolicited take-over offer by Teck Cominco, the world's top zinc miner, represents a 20-percent premium to Inco's closing price of C$65.38 on the Toronto Stock Exchange on Friday.
Teck Cominco said its offer is conditional upon Inco, the world's second largest nickel producer, ending or withdrawing its C$12-billion ($10.6 billion) take-over bid for Falconbridge Ltd. The transaction has been delayed three times to give US and European competition authorities time to review the deal.
"To get into nickel was a strategic priority," Teck Cominco President and Chief Executive Donald Lindsay said in a conference call with analysts.
"It's a better deal (than the Inco-Falconbridge one) because the new company will have a greater diversification and more leading commodity position, and this will ultimately reduce the volatility in earnings and cash flow," Lindsay said.
The combination of Teck Cominco and Inco would have a pro forma value of about C$35 billion, with a leading position in zinc, nickel and metallurgical production, as well as a significant presence in copper, gold and other commodities, Teck Cominco said.
Lindsay said the deal is expected to be accretive to earnings and cash flow per share, as the company targets initial administrative and operating synergies of over C$150 million annually.
The news also sent shares of Xstrata and other UK-listed miners leaping on the London Stock Exchange on Monday, with Xstrata's stock up nearly 6 percent. There has been market speculation that Xstrata wants to buy Falconbridge, which would be seen as positive for the company.
Falconbridge was up 6.8 percent, or C$3.07, at C$50.30 on the TSE in morning trading.
Teck Cominco said it had discussed a potential merger with Inco last year, before Inco launched its offer for Falconbridge, but that those talks didn't bear fruit.
Under Teck Cominco's offer, Inco shareholders would have to choose between C$78.50 in cash or 0.9776 of a Teck Cominco Class B subordinate voting share plus C$0.05 for each Inco share, subject to pro ration based upon the maximum amount of cash and Teck Cominco Class B subordinate voting shares offered.
Teck Cominco said the maximum amount of cash it would pay is C$6.36 billion and the maximum number of Class B subordinate voting shares the company would issue pursuant to the offer is about 143 million.
Teck Cominco, which said it would not sell any Inco assets, would finance the cash portion of the offer using its cash resources and an underwritten bridge facility.
Inco officials weren't immediately available for comment.
Shares of Teck Cominco were down 3 percent, or C$2.40, at C$77.85 on the Toronto Stock Exchange.