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Mining industry

Falconbridge Reaffirms Support for Inco's Offer Following Review of Xstrata's Revised Proposal

Strategic Insights

— 2 min read

Falconbridge Limited, a leading copper and nickel company, has reaffirmed its unanimous support for Inco Limited's offer to acquire all of its common shares for Cdn$18.50 cash per share and 0.55676 of an Inco share per Falconbridge share. This decision comes after the company's board of directors reviewed Xstrata plc's revised offer of Cdn$62.50 in cash per Falconbridge share, which remains subject to approvals by Investment Canada and Xstrata shareholders. The Inco offer, currently set to expire on July 27, 2006, has been deemed more attractive for Falconbridge shareholders, citing the potential for creating an unrivalled base-metals mining company with significant value creation opportunities.

The Falconbridge board, led by Chief Executive Officer Derek Pannell, highlighted the solid market fundamentals for nickel and copper, which will continue to underpin a positive metals pricing environment. This, combined with the forecasted synergies of $550 million and the completion certainty provided by Inco's regulatory approvals, has led the board to reaffirm its support for the Inco offer. Furthermore, assuming completion of the proposed Phelps Dodge offer to Inco, former Falconbridge shareholders would receive an additional premium, including additional cash.

Key Takeaways:

  • Falconbridge's board of directors has reaffirmed its unanimous support for Inco's offer of Cdn$18.50 cash per share and 0.55676 of an Inco share per Falconbridge share, excluding the special dividend of Cdn$0.75 per common share.
  • The implied value of the Inco offer was Cdn$64.40 at close of business on July 24, 2006, while Falconbridge shares were trading at Cdn$62.45, ex-dividend.
  • The Inco offer is deemed more attractive due to the potential creation of an unrivalled base-metals mining company with significant value creation opportunities.
  • The Xstrata offer, currently expiring on August 14, 2006, remains subject to approvals by Investment Canada and Xstrata shareholders.
  • Falconbridge has reported record-breaking financial results for the second quarter of 2006, with net earnings in accordance with Canadian generally accepted accounting principles of $472 million and net earnings of $728 million.
  • The combination of Inco and Falconbridge is expected to deliver outstanding short- and medium-term earnings, with potential synergies of $550 million.
  • Derek Pannell, Chief Executive Officer of Falconbridge, has highlighted the solid market fundamentals for nickel and copper, which will continue to underpin a positive metals pricing environment.

Statistics:

  • Implied value of the Inco offer: Cdn$64.40 (ex-dividend)
  • Trading price of Falconbridge shares (ex-dividend): Cdn$62.45
  • Special dividend per common share: Cdn$0.75
  • Inco offer: Cdn$18.50 cash per share and 0.55676 of an Inco share per Falconbridge share
  • Xstrata offer: Cdn$62.50 in cash per Falconbridge share
  • Net earnings in accordance with Canadian generally accepted accounting principles (Falconbridge): $472 million
  • Net earnings (Inco): $728 million
  • Synergies expected from the combination of Inco and Falconbridge: $550 million

Sources:

  • Falconbridge Limited
  • CCNMatthews (via COMTEX)
  • TSX:(FAL) (NYSE:FAL)

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