Teck tenders offer for Cominco shares

Seeing robust growth in its 45.1% equity stake in base metal major Cominco (CLT-T), Teck (TEK-T) has tendered an offer to buy an additional 4 million shares at $25 per share.

The $100-million bid represents a 19% premium over the recent closing price of Cominco shares and would boost Teck’s equity interest in the major to 49.8%.

According to Teck, a new accounting rule, effective this year, is driving the stock purchase. Under the rule, designed to reflect capital gains, Teck would be required to reduce its share of Cominco’s earnings by up to 30%. The rule does not apply once the interest exceeds 50%, and Teck Chairman Norman Keevil says his company could take a 51% interest in Cominco before year-end. Teck’s long-term objective is to merge with Cominco, though such a merger will not happen until Teck’s shares rebound from their current slump. At presstime Teck’s shares were trading at $10.15, whereas Cominco’s stood at $21.50.

Keevil says Cominco shares represent good long-term value for Teck, and the proposed offer would provide an opportunity for those Cominco shareholders who wished to sell at a premium to the current market.

Teck intends to mail its offer to Cominco shareholders in the next four weeks. If the deal is completed, the major would hold 42.6 million of the 85.5 million outstanding shares of Cominco. Cominco has responded to Teck’s gambit by forming a special committee of independent directors to respond to the cash offer. The special committee will appoint a valuator to conduct a formal valuation of the shares of Cominco and provide a fairness opinion. The committee will then make a recommendation to the board of directors.

Teck posted a first-quarter profit of $7 million (or 6 per share) on sales revenue of $168.5 million, compared with earnings of $1.6 million (2 per share) on sales of $166.9 million in the first three months of 1999.