AMID talk of additional consolidation scenarios in the global mining industry, Xstrata has faced another setback in its bid to become a true rival to its bigger competitors BHP Billiton, Rio Tinto and Anglo American.
The Ontario securities regulator ruled on Friday that Xstrata’s $US16.1 billion bid for the 80 per cent of Canadian nickel producer Falconbridge it does not own could be blocked by a “poison pill” that would dilute its shareholding.
Falconbridge put the so-called shareholder rights plan in place last year to block a takeover attempt from Xstrata in favour of a friendly merger with fellow Canadian nickel miner Inco.
Once Inco realised it could not top Xstrata’s all-cash offer without some help, it announced a $US56 billion three-way tie-up with American copper miner Phelps Dodge and Falconbridge last week.
The merger with Phelps Dodge would allow Inco to raise its offer for Falconbridge, which has been delayed for months due to competition concerns from regulators around the world.
Since it announced the deal, Phelps Dodge has faced questions from some of its institutional shareholders about the financial merits of the tie-up. The company’s second largest shareholder, Atticus Capital, told Bloomberg a return of capital or outright sale of Phelps Dodge would be preferable. In contrast, 99 per cent of Xstrata shareholders voted in favour of the bid for Falconbridge at an extraordinary meeting in London on Friday.
Because Phelps Dodge, Inco and Falconbridge – along with fellow North American miners Teck Cominco, Alcoa and Alcan – are the only sizable takeover targets remaining for diversified global miners BHP, Rio, Anglo and Xstrata, many of the companies have held merger talks in recent months.
“In our view, common sense dictates there is still the possibility of additional offers for any of the players involved in this [Phelps Dodge-Inco-Falconbridge] transaction,” Credit Suisse’s North American mining analysts told clients last week. They said that Phelps Dodge’s share price had fallen since it announced the deal, making it even cheaper as a standalone target.
Canada’s Globe and Mail reported last week that aluminium miner Alcan and Inco considered a merger before Inco struck the friendly deal with Phelps Dodge. Alcan was apparently worried it would be a vulnerable takeover target for BHP or Rio if it did not get larger and diversify into other commodities. In May the Herald reported there was widespread industry speculation that BHP or Rio would launch a bid for Canada’s Alcan or its US rival, Alcoa.
The Globe and Mail also said last week that Anglo was considering an offer for Inco, meaning many other scenarios could occur before consolidation in the North American mining industry is completed.