Xstrata hopes third time is a charm

Xstrata (XSRAF-O, XTA-L) has bumped its hostile bid for the 80.2% of Falconbridge (FAL-T, FAL-N) it doesn’t already own by nearly 6%. The sweetener is aimed at thwarting a freshly revised three-way deal that would see its prey combine with Inco (N-T, N-N) and Phelps Dodge (PD-N).

The Swiss-based miner has raised its bid to $62.50 per share from $59.00, three days after Inco boosted its bid for Falco with the backing of Phelps. Xstrata’s increase is in line with what many analysts were expecting; still some say the company could go as high as $65 a share. Xstrata originally launched its bid to consolidate Falco with a bid of $52.50 per share on May 17.

Falconbridge said it is reviewing the offer and will advise its shareholders as soon as it completes its analysis.

Xstrata’s new bid values Falconbridge as a whole at around $24.1 billion. That includes a special dividend of 75 per share recently unveiled by Falconbridge. Claiming the dividend as its own, Xstrata says its offer comes to $63.25 per share. A successful bid would see Xstrata cover the US$240 million dividend payout, less around US47.5 that it would have received for its existing 19.8% stake in Falco.

“Xstrata’s 20% stake in Falconbridge, purchased at $28 per share, puts us in the unique position of being able to offer $63.25 per share, a price that is simply more than any other company can justify under any realistic commodity price scenario,” said Xstrata CEO Mick Davis in a prepared statement.

Xstrata’s average acquisition cost under the new proposal comes to around $56.44 per share, perhaps leaving for a higher bid if needed.

Xstrata has also dropped the minimum tender condition on its offer, which will allow it to take up and pay for any shares tendered immediately following approval by its shareholders and Industry Canada. The company expects a decision from the Investment Review Division soon.

Davis also reiterated his company’s aim to acquire all of Falconbridge shares amid continuing inferences that Xstrata would commence a creeping takeover once Falco shareholders’ rights plan expires on July 28.

Xstrata’s new bid expires on Aug. 14, which allows Falconbridge shareholders to receive Falco’s special dividend. Xstrata’s plan will also face a shareholder vote on that day. The company already has the support of major shareholders Credit Suisse Securities and Glencore International, who together hold around 35.9% of the company’s outstanding shares.

The same cannot be said for Phelps’ debt-laden plan to swallow up Inco and Falconbridge. Two of the company’s major shareholders Atticus Capital and Lehman Brothers have publicly criticized the deal as too dilutive, and plan to vote against it.

The recent increase to Phelps’ three-way plan is accompanied by an additional US$1.67 billion in debt, to bring the grand total to nearly US$24 billion.

Under that plan, Inco is offering Falco shareholders $18.50 in cash and 0.55676 of one of its shares for each Falconbridge share. The offer requires a simple majority of Falconbridge’s fully diluted outstanding shares to be tendered; it expires on July 27. Additionally, Phelps has added $2.75 to its offer for Inco, to bring its bid to $20.25 in cash accompanied by 0.672 of one of its own shares.

Xstrata plans to finance its plan via committed debt facilities of US$19 billion.

As it stands, Inco’s offer for Falconbridge rings in at $62.93, and Phelps’ offer for Inco amounts to around $82.55, based on mid-afternoon share prices on July 19. On a “look-through” basis Inco’s offer comes to $64.46.