$4.5 billion, or $43.50 per share — Inco tops Falconbridge’s bid for Diamond Fields

A rival suitor has crashed the Falconbridge (TSE)-Diamond Fields Resources (TSE) wedding. Whether Falconbridge will rise to the challenge or be left alone at the altar remains to be seen.

Inco (TSE) has calculated the value of its recent offer to be $43.50 per Diamond Fields share, or approximately $4.5 billion, making it half a billion dollars richer than the offer made by Falconbridge in February.

Inco is offering 0.557 of an Inco common share per Diamond Fields share, valuing Diamond Fields at $26.39 per share and Inco at $47.375 per share. Inco would also issue to Diamond Fields shareholders a new series of convertible preferred shares, which would allow them to retain a 25% interest in the Voisey’s Bay nickel-copper-cobalt deposit in Labrador. Finally, each Diamond Fields share would entitle the bearer to one share in Diamondco (Diamond Fields’ diamond business).

Inco has set a cash limit of $350 million for its bid, and plans to issue about 51 million Inco common shares if that number is reached.

The deal would increase Inco’s effective interest in the Voisey’s Bay nickel-copper-cobalt deposit to 75%, and would allow it to cancel, without additional cost, the US$387 million of Series D convertible preferred shares it issued in June 1995 to acquire its initial interest in the deposit.

In a written statement, Inco Chairman Michael Sopko said acceptance of his company’s deal would be in the best interests of shareholders of both Diamond Fields and Inco.

“We believe the total consideration in our offer is clearly superior to that in Falconbridge’s offer. In addition, the Inco offer provides Diamond Fields shareholders with the opportunity for significant, ongoing participation in Voisey’s Bay.”

The $4-billion merger bid made by Falconbridge would see Diamond Fields shareholders exchange each common share for the following: one Falconbridge subordinate voting share or $31.12 per share, or a combination of both; one participating equity share of Falconbridge; and a Falconbridge note good for one common share of a new company which would be set up to hold Diamond Fields’ diamond properties. Diamond Fields and Falconbridge shareholders had set aside April 12 to vote on the deal.

At presstime, Falconbridge officials would not comment on the Inco offer or any possible Falconbridge counter-offer. Similarly, the board of directors of Diamond Fields had yet to review the new offer with their financial advisers, and thus declined to comment.

At the close of trading on March 27, the day after the offer, Inco shares dropped $4.25 to close at $43.15, Diamond Fields shares climbed $3.12 to close at $39.50, and Falconbridge shares were unchanged at $28.75.

The offer was Inco’s second attempt to add to the 25% direct and 7% indirect interest (through Diamond Fields shares) in the Voisey’s Bay deposit, which it acquired in June 1995. Several weeks ago, Diamond Fields refused an offer that would have seen Inco buy half of Falconbridge’s interest for cash and shares worth about $1.3 billion.

Although no mention of Inco’s plans to build a smelter-refinery complex were mentioned when the offer was announced, Inco spokesman Bob Purcell said, “I think it’s a given that there will be a smelter, if not on the property, then somewhere in the province.”

Purcell said Inco’s nickel refinery in Clydach, Wales, and its smelters in Sudbury, Ont., and Thompson, Man., would be possibilities for the initial processing of the Voisey’s Bay ore, until a new facility could be built.

Should it acquire Diamond Fields, Inco expects initial production to begin in 1998, with full production attained by 2000.