Xstrata raises the stakes (July 11, 2006)

After taking a few days to root around in its pocketbook, Xstrata (XSRAF-O, XTA-L) has boosted its all-cash bid for the 80.2% of Falconbridge‘s (FAL-T, FAL-N) shares it doesn’t already own by $6.50 per share to $59.00.

The sweetener comes four days after the Swiss-based miner extended the deadline for its original offer to July 21. That extension was prompted by Industry Canada’s decision to take up to another 30 days (potentially stretching into early August) to fully consider Xstrata’s offer.

Xstrata’s revised bid values the target shares at around $18.1 billion, and Falco as a whole at about $22.5 billion. Xstrata has also lowered the minimum tender condition on its offer to a majority of the Falco shares it doesn’t already own.

Xstrata picked up its existing 73 million Falco shares from Brookfield Asset Management (bam.a-t, bam-n), formerly Brascan, for $28.00 per share, or around $2 billion. If its latest bid were successful, the company’s weighted average acquisition price would ring in at $53.01 per share, or $20.2 billion in all.

In response to Xstrata’s initial bid extension, Falconbridge CEO Derek Pannell reiterated his board’s endorsement of the Inco (N-T, N-N) offer, which, unlike Xstrata’s bid, has received all necessary regulatory approvals. Falconbridge said it would evaluate the increased cash offer and provide a formal response to shareholders as soon as possible.

Xstrata’s improved bid also comes just two days before the July 13 expiration date of Inco’s competing bid for Falconbridge. Inco recently boosted its offer to $17.50 in cash plus 0.55676 of an Inco share for each share of Falconbridge. It places a value of $58.36 on each Falco share, based on Inco’s closing share price in Toronto on July 10 — the day before Xstrata’s new bid.

The offer is part of a US$40-billion three-way merger that would ultimately see Inco and Falco snapped up by Arizona-based copper producer Phelps Dodge (PD-N). Phelps intends to acquire Inco regardless of the outcome of the Falconbridge saga.

Phelps maintains that its friendly three-way deal provides the greatest long-term value for Falconbridge shareholders, and gives the Inco offer for Falconbridge an implied value of $61.04 per share, based on Phelp’s closing price in New York on June 10. Inco echoed Phelps’ sentiments in a statement of its own.

Xstrata shareholders recently approved their company’s bid for the Canadian miner but the plan still needs a nod from the European Commission (EC). That decision is expected by July 13.

The increased offer saw shares in Falconbridge $1.40 higher at $60.10 in late-afternoon trading in Toronto on July 11; Inco was $1.17 better at $74.55. In New York, Phelps was up US$1.38 at US$81.75. Xstrata finished a penny better at 2,021 pence in London.