Amax bids for Falconbridge

Falconbridge and large U.S. metals supplier Amax Inc. (NYSE) have entered into an agreement whereby Amax, through a wholly-owned Canadian subsidiary, will make a takeover bid and tender offer to purchase for cash all of the outstanding shares of Falconbridge for $36.125(C) per share for a total price of $2.8 billion (US$2.4 billion).

Falconbridge reports its board of directors has approved the offer and recommends in favor of it. The offer will stand for 30 days.

Noranda, Falconbridge’s largest shareholder, owns 23.8% of the nickel company’s outstanding shares, representing a 27% voting interest.

Falconbridge, the world’s second largest nickel producer in addition to being a significant producer of zinc, copper, silver and sulphuric acid from its Kidd Creek operations at Timmins, Ont., has about 77.5 million common shares outstanding.

Shares of Falconbridge closed at $30.25, up 63 cents , the day prior to the takeover announcement. During the past 52 weeks, the shares have traded in a $19.50-$32.63 range.

The company, whose Canadian nickel operations are centred in the Sudbury basin area of northern Ontario and which has overseas mining operations in Norway and the Dominican Republic, reported net earnings last year of $341 million(C) on revenue of $2.1 billion. It has assets worth $2.6 billion.

New York-based Amax, a worldwide supplier of metals and fuels as well as a manufacturer and distributor of metals-related products and chemicals, says it has funds and firm commitments for financing the deal. Amax recorded net earnings in 1988 of $741 million (US) on sales of $3.9 billion. It lists assets worth $4.4 billion.

“Falconbridge is an excellent organization with quality people and assets,” Allen Born, chairman, chief executive officer and president of Amax said. “Its acquisition will complement Amax’s current metals businesses and position the company well to serve growing markets.”

Amax spun off its gold interests in 1987 into subsidiary Amax Gold, which trades on the TSE. Amax Gold is the major shareholder of Canamax Resources, a small Canadian gold producer also trading on the TSE.

Born, a close friend of Falconbridge President Bill James, is a former chairman, chief executive officer and president of Placer Development (a forerunner of huge gold producer Placer Dome), which used to be the major shareholder of Falconbridge. Placer’s 24.9% interest in the nickel company was purchased by Falconbridge in 1988.

For his part, James, also Falconbridge’s chairman and chief executive officer, said his company’s directors are pleased all shareholders would receive an offer whereby they would have an equal opportunity to sell all their shares at a fair price.

When the Falconbridge shareholdings of Placer were put up for sale last year, Noranda tried unsuccessfully to purchase them. Consequently, Noranda went to the open market, acquiring first a 19.9% share interest in Falconbridge, then increasing its holdings to the current level.

Noranda, with an eye on the Kidd Creek operations, publicly stated its intention to boost its ownership in Falconbridge over time. Noranda has spent about $450 million to date to acquire the Falconbridge shares, paying as little as $22.45 per share and as much as $32 per share.

Noranda Inc. vice-president and treasurer Bruce Bone said the company had no comment on the Amax offer other than that Noranda is “examining the options” available to it.

The Amax offer is conditional upon acceptance by Falconbridge holders of at least two-thirds of the shares outstanding, upon obtaining Canadian and U.S. regulatory approvals and other certain matters.

Falconbridge says its board received an opinion from securities firm Nesbitt Thomson Deacon that the Amax offer is fair and reasonable from a financial point of view to Falconbridge shareholders.

Amax says that upon consummation of the offer, it will propose a transaction to acquire all untendered shares through amalgamation or other appropriate procedure for cash consideration equal to the amount paid per share in the offer.

Falconbridge has granted Amax an option to purchase for $356.7 million(C) a debenture convertible into 9,875,000 million Falconbridge shares (equal to $36.125 per share) within 45 days of the issuance of the option or, if later, five days following the receipt of all required Canadian regulatory approvals needed to complete the tender offer.

The debenture may be converted only if Amax acquires 56% of the Falconbridge shares.

Falconbridge also announced it has adopted a shareholder protection rights plan pursuant to which it issued to shareholders one right for each share outstanding. The plan took effect Aug 2. The rights remain attached to the shares and are not exercisable until the occurrence of certain designat ed events. The rights would have a diluting effect on any person who acquires, other than through a “permitted bid,” 15% or more of Falconbridge’s outstanding shares or, if such a person already holds 15%, who increases his holdings by 1% or more.

A”permitted bid” is one made to all of the shareholders for all of the shares by way of a circular takeover bid within regulatory guidelines. Such a bid would not require the approval of a majority of shareholders or Falconbridge directors. The plan will lapse if not ratified by shareholders within 120 days.

Securities firm Merrill Lynch Canada is acting as dealer-manager for the offer in Canada, and Merrill Lynch Capital Markets is the dealer- manager for the offer in the United States.

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