Takeover speculation heats up
TECK COMINCO Markets are hot for mining companies with global reach
added to its portfolio with a $475million investment in the oilsands in northern Alberta.
And thanks to global demand for commodities, Teck Cominco is flush with more than $1.3-billion in cash. It added to its financial heft by issuing US$1-billion in notes recently, priming the company to be in the driver’s seat in any takeover deal.
Even still, the Vancouver investment community is buzzing that Teck Cominco could be next on the block. Xstrata Plc., which had built up a 19.9% stake in Falconbridge, is seen as the likeliest buyer. A US$320-million poison pill agreement in the Inco Falconbridge deal makes it unlikely Switzerland-based Xstrata, the world’s largest coal exporter, will present a counter bid. In the global guessing game over the next mining match-up many eyes have fallen on
Teck Cominco Ltd. and whether it will emerge an acquirer or the acquired.
With Inco Ltd.’ s $12.8-billion purchase of Falconbridge Ltd. on Tuesday, speculation over the next round of takeovers has heated up, and Teck, the world’s largest zinc producer and a company loaded with cash, looks certain to play a crucial role as the mining sector continues to consolidate.
After all, the markets are hot for diversified mining companies with global reach. That’s what sparked Inco and Falconbridge, relatively pure players in the nickel and copper sectors respectively, to join forces despite decades of heated rivalry.
Teck Cominco is already there. In addition to zinc, copper and coal, the company also produces gold and molybdenum. In September the Vancouver company
Talk of a Teck Cominco takeover was fuelled yesterday when Michael Gambardella, an analyst with JP Morgan Securities in New York, suggested Xstrata might make a run for the company.
“Other miners such as Teck Cominco could be viewed as attractive strategic options for Xstrata and others,” the analyst wrote in a research note.
Xstrata is clearly on the hunt for acquisitions, but it has had mixed success. Earlier this year it was also shut out from a hostile takeover of Australia’s Western Mining when the company was snatched up by industry giant BHP Billiton.
But other analysts quickly dismissed an Xstrata takeover of Teck Cominco. The major stumbling block, they say, is Teck Cominco’s former CEO and now chairman Norman Keevil, who effectively controls the votes for 32.4% of the outstanding shares through the company’s multiple-class share structure.
“ Teck Cominco is probably the most attractive takeover target left in the world,” said Victor Lazarovici, an analyst with BMO Nesbitt Burns in New York. “But [Mr. Keevil] is the only person that matters and he’s said he’ll never sell the company. “
Any deal to buy Teck Cominco would have to be on friendly terms, said analysts, meaning a hefty premium for its world-class assets.
Instead, Teck Cominco is more likely to be a buyer.
“ Any mid-cap producer would make sense for Teck if it could get the right deal for it,” said Ron Coll, an analyst with Jennings Capital. He pointed to Torontobased Inmet Mining Corp., a producer of copper and gold, as well as Vancouverbased copper producer First Quantum Minerals Ltd. with assets in central Africa.
Meanwhile, Haytham Hodaly, an analyst with Salman Partners in Vancouver, suggested if Teck Cominco wants to increase its exposure to nickel, a deal to buy Toronto- based LionOre Mining International “ might not be far out there.”
But Mr. Lazarovici said that if Teck Cominco wants to get into the top tier of miners alongside BHP and Rio Tinto Plc and even Xstrata, it needs to have a market capitalization at least double its current $10.4-billion. TECK COMINCO LTD.
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