Falconbridge fuels bid war

Falconbridge, the Toronto-based nickel and copper miner, has taken the unusual step of releasing a single month’s financial results with the aim of encouraging its two suitors, Xstrata and Inco, to raise their takeover offers. The results show a surge in earnings and cash flow in April, thanks to booming metal markets.

Falconbridge has, until now, backed Inco’s cash-and-shares bid, valued at about C$51 (US$45) a share, mainly because of the potential for cost savings at the two companies’ flagship operations near Sudbury, Ontario.

But Xstrata’s all-cash offer of C$52.50 a share earlier this week has created the potential for a bidding war.

“We need to get the best offers for our shareholders,” a Falconbridge said.

Some analysts and investors favour Xstrata’s all-cash option because of volatile metal markets and uncertainties stemming from a hostile takeover bid for Inco earlier this month by Teck Cominco of Vancouver.

Inco supporters say its offer could see Falconbridge shareholders benefit from cost savings and high metal prices through a continued stake in the combined group.

Derek Pannell, Falconbridge’s chief financial officer, said that while the company would not make a habit of releasing a single month’s earnings, “we felt it was important that shareholders understand the magnitude of the earnings that we are generating at this crucial time”.

Net income almost tripled to US$238m in April, from US$81m a year earlier. Falconbridge will use the extra cash flow to redeem junior preferred shares. Its debt-to-capital ratio dropped to 32.8 per cent last month from 36.7 per cent last December.

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