Phelps’ bid gets Canadian nod, hedge hurts earnings

The Canadian Competition Bureau has granted an advanced ruling certificate unconditionally clearing Phelps Dodge‘ (PD-N) friendly bid to buy Inco (N-T, N-N).

The nod came on the same day Industry Canada approved Xstrata‘s (XSRAF-O, XTA-L) hostile bid for Falconbridge (FAL-T, FAL-N), removing the last major regulatory hurdle standing before that offer. Phelps’ bid still requires clearance from European regulators and its own shareholders. Inco‘s (N-T, N-N) competing bid for Falco has all regulatory approvals in place. Inco’s offer of $18.50 in cash plus 0.55676 of a share values each Falconbridge share at around $64.37, based on its share price in early-afternoon trading in Toronto on Wednesday. The bid expires at the end of business on Thursday.

Falconbridge’s shareholders’ rights plan expires on Friday; thereafter, Xstrata is free to amass shares on the open market. Xstrata’s all-cash bid of $62.50 per Falconbridge share runs through Aug. 14.

Phelps’ recent second quarter financial results saw it standing out form the rest of the merger combatants — the company saw earnings drop despite blazing metal prices.

During the three months ended June 30, the Arizona-based copper producer’s net income slipped by 31% from a year earlier to US$471.7 million (or US$2.32 per share). The latest earnings include a US$514.6-million charge owing to a write down of the company’s copper derivatives, and a US$9.8 million charge for environmental provisions. Revenue between the two periods jumped by around 52% to just shy of US$3 billion.

Phelps has locked in around 25% of its 2006 copper production at a selling price of US$1.63 per lb under its copper price protection programs. Around 20% of 2007 production is hedged at $2 per lb. The red metal is currently selling at around US$3.40 per lb.