Heavy trading in Inco shares

Calling Inco Ltd. (TSE) a heavy trader of late would be an understatement.

The nickel producer, which recently received shareholder approval for a recapitalization plan involving a “poison pill” provision and a special dividend worth $10(US) per share, traded 31.7 million shares Dec 15 on the Toronto Stock Exchange, the day before the stock went ex-dividend. The buying and selling of Inco shares that day, worth about $1.3 billion(C), represented about 63% of the day’s volume (50 million shares) on the TSE. The $1.3 billion is believed to be the second largest daily value recorded for one stock by the TSE.

In all, trading of Inco shares that day on the Toronto, Montreal and New York stock exchanges totalled 58 million shares.

Inco has almost 106 million shares outstanding.

Price of the stock Dec 15 on the TSE jumped $1.38 to $40.38. The next day the stock, trading ex-dividend, opened at $28; by the close of trading, it had climbed to $29.34. Volume that day in Inco stock alone amounted to 12.7 million shares. Tax considerations

Institutional buying and selling of Inco shares accounted for most of the action, driven by tax and portfolio management requirements. (Decisions had to be made on what was more desirable, a dividend payment or capital gain.) Investment dealer Gordon Capital, for example, was much involved, crossing a block of 9.5 million shares of the nickel miner at $28 on Dec 16 after crossing a block of equal size at $40 the previous day.

Two-step transactions, sometimes known as “delayed delivery,” seemed to be the order of the day. Shares sold at a pre-Dec 15 price, for example, would be bought back by the seller, under agreement, at an ex-dividend price, after payment of the dividend.

Inco’s rights (or poison pill) plan is the first of its kind in Canada. It is aimed at trying to slow a hostile takeover bid by making it overly expensive for the suitor to follow through. The poison pill provision would not prevent a takeover, however.

In order to help pay for the special dividend, Inco is borrowing $500 million(US), which will increase the company’s debt to $1.25 billion.

Inco, which is reporting record profits this year because of higher metals prices, is facing a court challenge over its rights plan from the Caisse de Depot et Placement du Quebec, which holds about 3% of Inco’s common stock.