Regulators in the European Union have decided to take a closer look at the proposed merger between Canadian metal heavyweights Inco (N-T, N-N) and Falconbridge (FAL.LV-T, FAL-N).
The European Commission (EC) said in a prepared statement on Feb. 24 that its initial market investigation had raised some serious competition concerns in certain nickel and cobalt markets.
The deal would beget the world’s largest nickel producer.
The EC’s decision gives it up to another 90 business days (or until July 12) to more closely examine whether the $12.8-billion union of the two companies would “significantly impede effective competition within the European Economic Area or a significant part of it.”
The key sticking point for the EC is the dominant position the combined entity would have in the superalloy and nickel plating markets. The commission is worried that the merger would limit customer choice and lead to high prices. It also fears that the enlarged company could delay development of its large portfolio of greenfield nickel projects to artificially maintain tight supplies and high prices.
The EC also pointed out that its decision to open a detailed investigation does not prejudge the final result of the investigation.
“It is crucial that the commission carefully analyses the impact of this merger on competition on the EU market, in a context of strong demand for raw materials and rising prices,” said competition commissioner Neelie Kroes in a prepared statement.
The European Commission is actively co-operating with a similar review being carried out by the U. S. Department of Justice. The Department of Justice is expected to deliver its verdict within the next two months.
Under a thrice-extended bid, Inco is offering Falconbridge shareholders $34 in cash or 0.6713 of one of its own shares accompanied, fittingly, by a nickel for each share tendered. The cash portion of the offer is capped at $2.87 billion and the share issuance is limited to 201 million shares. The bid now expires at the end of June.
Inco has offered to sell Falco’s Nikkleverk refinery in Norway and certain related marketing businesses (post merger) as a peace offering to regulators. Still, Inco CEO Scott Hand believes there is sufficient market competition, and the proposed deal should go ahead without the need for such a remedy.
Inco said in its own statement that should the EC decide that a remedy is required, it would work address its concerns and clear the transaction.
Combined, the two companies produced around 333,400 tonnes of nickel in 2005; output is expected to climb to around 453,600 tonnes in 2009. The new Inco would also produce significant copper an estimated 600,000 tonnes in 2005, with the potential to double by 2011.
On the financial front, pro forma combined revenues total US$6.4 billion for the first half of 2005, with combined cash flow from operations of US$1.25 billion.
The merger is expected to result in savings of around US$350 million by the end of 2007. Theses “synergies” would include up to 150 job cuts in Sudbury.
Share in Inco were a quarter richer at $57.32 in late-morning trade in Toronto following the news on Feb. 24; Falconbridge was 22 better at $37.84.
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