TORONTO (CP) -- An appetite for copper is the driving force behind Xstrata PLC's C$16.1-billion offer for Falconbridge Ltd. [TSX:FAL.LV; NYSE:FAL], the Swiss-based miner said Wednesday, as it announced terms of its bid for the Canadian company.
Xstrata, which already owns about 20% of Falconbridge, said it was confident the all-cash deal will succeed even as Falconbridge shrugged off the bid in favour of a sweetened bid from nickel giant Inco Ltd. [TSX:N; NYSE:N].
Xstrata [LSE:XTA] said early Wednesday it is offering C$52.50 in cash per share for the stake in Toronto-based Falconbridge it doesn't already own. The bid values Falconbridge at about C$20 billion.
Inco's sweetened offer valued the company at about C$19 billion.
''It follows that because of the immense value inherent in the combination of our respective copper businesses in Latin America, Xstrata is in fact the natural partner for Falconbridge,'' Xstrata CEO Mick Davis said during a conference call.
Inco's bid, meanwhile, is complicated by an unsolicited bid from Vancouver-based mining company Teck Cominco Ltd. [TSX:TEK.SVB], offering C$17.8 billion for Inco on the condition that it drop the Falconbridge deal.
Xstrata's cash offer would ''deprive our shareholders of the opportunity of participating in the growth profile that is embedded in Falconbridge's outstanding asset base, and which is further enhanced by the proposed combination with Inco,'' Falconbridge CEO Derek Pannell said.
Xstrata's proposed price per share, he added, does not reflect the full and fair value of Falconbridge shares.
''The proposed offer is conditional and does not take into account the unique and real synergies that are available from the Inco-Falconbridge combination.''
For its part, Inco also said it remained convinced that its friendly offer for Falconbridge ''clearly represents superior value for Falconbridge shareholders'' and has said it would increase efficiencies and cost savings by as much as US$390 million a year.
''The Inco and Falconbridge combination creates a Canadian-based global powerhouse that will be the world's No.1 nickel company and a leading copper producer, with a truly outstanding portfolio of growth opportunities in these two great metals,'' Inco CEO Scott Hand said in a release.
Xstrata's all-cash offer does not rely on perceived synergies between the two companies and is a more secure deal for Falconbridge shareholders, Davis said.
Some analysts remained skeptical of Xstrata's true intention however, and said it was still too early to hypothesize which way shareholders will lean.
''The difference between the offers is only 3% and because Inco's offer is tied to the price of Inco's shares, that's a very small difference,'' said Ray Goldie, an industry analyst with Salman Partners Inc.
''Inco might be able to top the offer without doing anything. [Its] shares have got to go up only about six and a half per cent and the Inco offer is worth more than the Xstrata one.''
Goldie said he believes Inco will come back with a better offer and Xstrata will tender to the bid, happy to have boosted the value of its Falconbridge shares.
Falconbridge shares gained C$1.60 or about 3% to close at C$55.60 Wednesday on the Toronto Stock Exchange with more than 22.6 million shares changing hands. Inco stock lost 31 cents to C$73.19.
Davis maintained a deal with Falconbridge would help push Xstrata's annual copper production to one million tonnes and create ''exceptional flexibility'' to optimize product flows between the operations.
And while copper is ''where the real opportunity lies,'' according to chief financial officer Trevor Reid, Xstrata is also interested in the nickel business and has no plans to cut jobs at Inco's Sudbury operations.
''Our bid is not so much focused on synergies. We are not a company who seeks to get value simply by cutting costs and cutting people,'' Reid said in a telephone interview. ''Our story is more about investment in the assets to optimize them.''
The offer requires Xstrata shareholder approval, and a circular will be mailed in the next two weeks, along with notice of a special general meeting to be held in June. It will expire July 7.
The combination of Xstrata and Falconbridge would create the world's fifth-largest diversified mining company, with leading market positions in copper, nickel, thermal and metallurgical coal and zinc.
The Inco-Falconbridge merger would result in the world's largest nickel producer, with combined estimated 2006 nickel output of 815 million pounds, forecast to climb to about one billion pounds in 2009.
On Wednesday, Teck spokesman Douglas Horswill said the company was ''continuing to pursue the offer that we announced we intended to make last Monday.''
''We think it's a full and fair offer and we have no intention of doing anything but pursue that offer as it was laid out,'' he said.
(c) The Canadian Press 2006
