Xstrata poised to enter battle for Canadian miner Falconbridge

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The Independent Online

A fight to gain control of the Canadian nickel and copper mining company Falconbridge is developing, with the Anglo-Swiss mining giant Xstrata poised to enter the fray.

Falconbridge's preferred partner is Inco, also of Canada. Inco raised its friendly bid for Falconbridge this weekend to 19.6bn Canadian dollars (£9.3bn) and upped the break fee if the deal does not go ahead to $450m (Canadian). The takeover would create the world's sixth largest mining company and the largest nickel producer in the world.

However, all eyes are on Xstrata which has been linked with a £9.5bn spoiling bid. An Xstrata spokesman hinted that the group was working on an approach. "We continue to review our options and no decisions have been made," he said. Xstrata recently lost out to BHP Billiton in an attempt to buy the Australian company WMC.

A key hurdle to a Falconbridge bid has been removed, adding spice to the speculation. Xstrata purchased a 20 per cent stake in Falconbridge from Brookfield Asset Management in 2005 for $28 (Canadian) a share. It agreed that if it offered to pay a higher price for further shares, it would pay Brookfield the difference. That agreement lapsed today.

The situation is further complicated by Teck Cominco's $17.8bn (Canadian) hostile bid for Inco last week. That bid stipulates that Inco drop its takeover offer for Falconbridge, perhaps opening the door for Xstrata.

In a move seemingly in response to Teck's hostile bid, Inco upped its cash offer for Falconbridge to $51.17 (Canadian) per share, a $5-per-share increase from its original offer last October. The share offer is unchanged but is based on Inco's closing share price on Friday of $73.80 (Canadian), a price which has climbed steeply since Teck's offer emerged.

Inco's statement outlining its new offer did not refer to Teck, instead arguing that its new price reflected the surge in metal prices. Copper prices have doubled on the London Metal Exchange since Inco first bid for Falconbridge, while nickel prices have risen 66 per cent.

Inco's chairman and chief executive Scott Hand said the takeover "is in the best interests of shareholders of both companies over the long term". Falconbridge's chief executive Derek Pannell said: "This is the right deal with the right company." He added that the two Canadian companies are "logical partners".

The deal, which does not require shareholder approval, has been delayed three times in an attempt to gain regulatory approval in Europe and the US.