Inco’s empire set to expand Falconbridge retreats in battle for Voisey’s Bay

While it lost the prize of Voisey’s Bay to Inco (TSE), Falconbridge (TSE) does not walk away empty-handed, and may yet have its own chunk of Voisey’s Bay nickel.

Nevertheless, Falco President Frank Pickard concedes: “We’re sitting on the sidelines right now.” As for buying a minority share of Voisey’s Bay from arch-rival Inco, he says: “There’s always a possibility, but we don’t have any plans at the present time.”

The nickel giants have been engaged in a bidding war for control of Diamond Fields Resources’ (TSE) key asset, the rich Voisey’s Bay nickel-copper-cobalt project in Labrador. Recently, however, Inco gained the upper hand when the directors of Diamond Fields unanimously resolved to accept its latest offer. Once completed, the acquisition will ensure Inco’s status as the world’s premier nickel producer and significantly reduce its overall production costs.

Pickard says he remains “very enthusiastic” about the Voisey’s Bay deposit. “But it was just getting too expensive — and it doesn’t matter how many partners you have; the total cost was still going to be steep.

“If we were to bid again, Inco has stated that they, too, would bid again. It could be a very expensive situation for us.”

He explains that pulling out of the bidding in time for the April 12 shareholders meeting was important, so that special resolutions relating to the Diamond Fields merger would not be voted on in vain.

Meanwhile, with the agreement between Falconbridge and Diamond Fields now terminated, the former is entitled to keep the $28-million commitment fee it received from the latter when the offer was made, plus an additional $73-million non-completion fee once Diamond Fields signs with Inco (or any other company).

“We haven’t got any specific plans for it,” Pickard says of the $101-million consolation prize. “Certainly we’ve got to pay our expenses for the [Diamond Fields merger] offer, but we’ll still have a significant amount left over.” Inco’s successful bid, offered in late March, will see Diamond Fields shareholders receive 0.557 of an Inco common share per Diamond Fields share (or the equivalent in cash of up to maximum of $350 million), along with 0.091 of an Inco Series E Convertible Redeemable Preferred Share, 0.25 of an Inco Class VBN share and one Diamondco note which will be paid in one share of the company that will comprise all of Diamond Fields’ diamond assets. The total package is worth about $4.5 billion, or $43.50 per Diamond Fields share.

Diamond Fields has set a record date of April 15 and a meeting date of May 22 for shareholders to vote on the proposed arrangement with Inco. It expects to mail an information circular to shareholders on April 22.

Meanwhile, analysts continue to speculate that once the proposed transaction is completed, Inco may sell a small stake in Voisey’s Bay to help offset its acquisition costs and to secure corporate control.

Meanwhile, Inco has already stated that it intends to launch an aggressive share re-purchase program in order to remedy the dilution that will result from the Voisey’s Bay acquisition. Inco projects that up to one-third of its post-acquisition pro forma number of common shares outstanding could be repurchased by the year 2000.