Teck bows out

Having failed to raise some $5.7 billion overnight, Teck Cominco (TCK.A-T, TCK-N) quietly let its offer for Inco (N-T, n-n) expire on Aug. 16.

Teck’s withdrawal from the bidding war follows its ambitious but failed overnight offering of around 74 million of its class B shares. The deal, which would have been the largest in Canadian history, would have allowed the company to boost its offer to $89.00 per share, with at least $71.20 of that in cash.

Teck’s existing offer of $40.00 in cash plus 0.5821 of one of its own shares failed to attract two-thirds of the nickel miner’s outstanding shares by midnight on Aug. 16. Teck subsequently ordered CIBC Mellon Trust, the depositary for the offer, to promptly return all of the shares that had been tendered.

Despite its failure, many have applauded the diversified miner for its discipline and restraint in not overextending itself for the sake of the bid.

Teck’s last-minute Hail Mary attempt was designed to combat an all-cash bid of $86.00 per share from Companhia Vale do Rio Doce (CVRD) (RIO-N). CVRD’s bid remains open until Sept. 28, and is subject to regulatory approval, including that of Industry Canada.

In offering documents filed with the U.S. Securities and Exchange Commission, CVRD said it plans to “use Inco as the platform for its global base metals operations.” The Brazilian miner also said it would look at either combining its own base metal assets with those of Inco or selling off some of Inco’s assets or interests.

The documents also reveal that Inco’s financial advisers approached CVRD about making a friendly bid for Inco in late May, following the launch of Teck’s hostile bid. The invitation was later rescinded just before Inco tabled its planned three-way merger with Arizona-based copper miner Phelps Dodge (PD-N) and Falconbridge (FAL-T, FAL-N).

CVRD also plans to delist Inco’s shares from the Toronto Stock Exchange and New York Stock Exchange.

Inco says it is “neutral” on the Brazilian iron ore giant’s offer but is open to talks. Instead, Inco still prefers its deal to be acquired by Phelps for $20.25 plus 0.672 of a share. That plan will be put before Inco’s shareholders on Sept. 7; Phelps’ shareholders are slated to vote on Sept. 25. Some of Phelps’ major shareholders have consistently said they plan to vote against the scheme, as it is too dilutive and debt-laden.

Under its agreement with Phelps, Inco is allowed to remain neutral on a competing bid for 15 days (or until Aug. 29); it is also allowed to enter into discussion with competitors, as long as their bids are unsolicited and “could reasonably be expected to result in a superior proposal.”

Inco has designated CVRD’s bid as such and has invited the company to the negotiating table. Phelps retains the right to match any superior bid that might emerge from those talks. Otherwise, Phelps would stand to receive a US$475-million break fee from Inco.

Based on the company’s closing share price in New York on Aug. 21, Phelps’ bid valued Inco shares at around $88.76 apiece. Still, CVRD’s offer is widely seen as the frontrunner because it is offering cash only.

For its part, Teck says it will now turn its attention to a host of other growth opportunities, including enhancements to its existing assets and acquisitions.