Inco talking to CVRD, while backing Phelps Dodge
Inco Ltd. has agreed to talk termswith potential buyer CVRD of Brazil, while making clear that it prefers to be bought by U.S.-based mining giant Phelps Dodge Corp.
In a move that has become common in takeover battles, Incois effectively playing the two bidders against each other in hopes of getting a better price.
The Canadian nickel giantannounced Tuesday that its board has given senior management the go-ahead to "engage in discussions and negotiations with CVRD," Inco said.
"The CVRD offer could reasonably be expected to result in a 'superior proposal' for purposes of the[merger] agreement with Phelps Dodge."
In the meantime, the Inco board is continuing to recommend that shareholders accept the Phelps Dodge offer.
Inco is playing a delicate game, given the small print in the existing merger agreement between Inco and Phelps Dodge. The agreement requires Inco to support Phelps Dodge unless it gets a better offer from somewhere else.
The agreement between Inco and Phelps Dodge "requires that Inco's board of directors continue to recommend that Inco shareholders vote in favour of the arrangement between Inco and Phelps Dodge unless it determines that an acquisition proposal [the CVRD offer] constitutes a 'superior proposal,' " Inco said.
CVRD, more properly known asCia. Vale do Rio Doce, has offered to buy Inco for $86 a share or $17.2 billion in an all-cash deal that was announcedlast week. That offer stands until Sept. 28.
Some analysts say that offer tops Phelps Dodge and the $17.7 billion it offered last month because CVRD is willing to pay in cash, whilePhelps Dodge is offering a mix of cash and stock.
Investors won't know the winner for some time. Phelps Dodge has set a shareholder vote for Sept. 25, three days before the CVRD offer expires.
Canada's Teck Cominco has also been in the running, but it withdrew last week after Inco turned down its offer of $17.7 billion in favor of Phelps Dodge.
"Teck announced that it had no plans to enter into discussions or negotiations with Inco regarding the Teck offer," Inco said.
Inco stock fell 18 cents on the Toronto Stock Exchange Tuesday morning, to $88.62, while Phelps Dodge rose $1.23 to $90.57 US in New York. CVRD rose four cents to $22.05, also on the NYSE.