Xstrata ups its hostile bid for Canadian nickel miner

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The Anglo-Swiss mining group Xstrata has upped its hostile bid for Falconbridge to C$18.1bn (£8.7bn) as it tries to wrest control of the Canadian nickel miner in an increasingly complicated takeover battle.

Falconbridge, in which Xstrata already owns a 20 per cent stake, has agreed to merge with its Canadian mining rival Inco. Yet Inco is also subject to a hostile takeover approach from the Vancouver-based Teck Cominco which does not support a combination of Inco and Falconbridge. A fifth player, American Phelps Dodge, muddied the waters further when, in June, it agreed to buy the combined Inco and Falconbridge business for $40bn (£22bn).

In response to Phelps Dodge's offer, Xstrata has raised its cash bid for Falconbridge to C$59 a share from the C$52.50 it bid in May. The renewed cash offer broadly matches Inco's bid, which will be paid in cash and shares. Yet the value of Inco's shares has risen markedly since the Falconbridge bidding war started, partly due to Teck Cominco's bid. Additionally, Inco and Falconbridge have agreed a C$450mbreak-fee if the deal does not proceed.

Mick Davis, the Xstrata chief executive, said: "Set against the continuing significant market and commodity risk inherent in the Inco offer, particularly given Inco's significantly higher leverage post transaction and the continued uncertainty around the completion of the Phelps Dodge offer for Inco, the Xstrata offer represents compelling cash value for Falconbridge shareholders."

If successful, the Falconbridge deal will add nickel production to the Anglo-Swiss company's copper and coal-mining assets. Xstrata said the merger would be substantially earnings enhancing and cash-flow accretive in the first year after acquisition. Xstrata has already received shareholder approval for the Falconbridge deal and is confident it will soon get the regulatory go-ahead from the European Union.

Even if it is unsuccessful, it stands to make a $2bn profit on its original investment in Falconbridge.