Transaction Creates World's Largest Nickel Producer and Largest
Publicly Traded Copper Producer PHOENIX AND TORONTO, June 26
/PRNewswire-FirstCall/ -- Phelps Dodge Corporation (NYSE:PD), Inco
Limited (NYSE: N; TSX) and Falconbridge Limited (NYSE: FAL; TSX)
announced today they have agreed to combine in a US$56(1) billion
transaction to create a North American-based mining company that is
one of the world's largest. The new company will be named Phelps
Dodge Inco Corporation. Phelps Dodge Inco will be the world's
leading nickel producer, the world's largest publicly traded copper
producer and a leading producer of molybdenum and cobalt, and it
will have a world-class portfolio of growth projects and exciting
exploration opportunities. For the quarter ended March 31, 2006,
the three companies had combined revenues of US$6.3 billion and
EBITDA (earnings before interest, taxes, depreciation and
amortization) of US$1.9 billion. The corporate office and the new
company's copper division will be headquartered in Phoenix. Inco
Nickel, the new company's nickel division, will be headquartered in
Toronto. The Phelps Dodge board of directors also announced, as
part of the transaction, a share repurchase program of up to US$5.0
billion to be commenced after closing. Phelps Dodge Inco will have
operations in more than 40 countries and will employ approximately
40,000 people globally. Phelps Dodge Inco will be listed on the New
York Stock Exchange and will apply for a listing on the Toronto
Stock Exchange. As a result of the three-way combination, Phelps
Dodge Inco will have a significantly increased weighting in the
S&P 500 Index. A Web site with detailed information on the
transaction is available at http://www.phelpsdodgeinco.com/ . J.
Steven Whisler, chairman and chief executive officer of Phelps
Dodge Corporation, said: "This transaction represents a unique
opportunity in a rapidly consolidating industry to create a global
leader based in North America-home of the world's deepest and most
liquid capital markets. The combined company has one of the
industry's most exciting portfolios of development projects, and
the scale and management expertise to pursue their development
successfully. The creation of this new company gives us the scale
and diversification to manage cyclicality, stabilize earnings and
increase shareholder returns. At the same time, we are committed to
maintaining an investment-grade credit rating throughout the
business cycle." Scott M. Hand, chairman and chief executive
officer of Inco, said: "This combination allows Inco's
shareholders, in addition to receiving a substantial premium for
their stock, to share in the significant synergies both from our
agreed merger with Falconbridge and from the combination with
Phelps Dodge, and it creates an opportunity for all three groups of
shareholders to participate in an exciting, new, diversified
industry leader. We believe the Phelps Dodge transaction delivers
an excellent value proposition for our shareholders. The new Phelps
Dodge Inco also will maintain a very strong commitment to and
presence in Canada." Derek Pannell, chief executive officer of
Falconbridge, said: "This is an industry-redefining transaction.
Phelps Dodge Inco will have the scale, diversification, market
leadership, reserve position, growth profile and balance sheet
necessary to create tremendous value for shareholders. It
represents a significant premium to Falconbridge shareholders, with
ongoing participation in the upside of the three-way combination.
We believe this transaction represents a most compelling
opportunity for all Falconbridge shareholders." Terms of the
Transaction Under the terms of the transaction, Phelps Dodge will
acquire all of the outstanding common shares of Inco for a
combination of cash and common shares of Phelps Dodge having a
value of C$80.13 per Inco share, based upon the closing price of
Phelps Dodge stock and the closing US/Canadian dollar exchange rate
on Friday, June 23, 2006. Each shareholder of Inco would receive
0.672 shares of Phelps Dodge stock plus C$17.50 per share in cash
for each share of Inco stock. This represents a premium of 23
percent to Inco's market price as of close of trading on June 23
and a 19 percent premium to the value of the existing Teck Cominco
Limited unsolicited offer for Inco. Simultaneous with its entry
into the combination agreement with Phelps Dodge, Inco has entered
into an agreement with Falconbridge to increase its previously
recommended offer for Falconbridge. Under the terms of this
enhanced offer, Inco has increased the cash component of the offer
from C$12.50 to C$17.50 and the exchange ratio from 0.524 shares of
Inco for each share of Falconbridge to 0.55676 shares of Inco for
each share of Falconbridge. The board of Falconbridge has
unanimously agreed to recommend this revised offer and also
approved an amendment of the Support Agreement with Inco to reflect
the revised price. Based upon the value of the consideration
offered by Phelps Dodge for Inco of C$80.13 per share, the implied
value of the revised agreed offer for Falconbridge including the
increased cash component is C$62.11 per share, representing a 12
percent premium to Falconbridge's closing price on June 23, and an
18 percent premium to the existing Xstrata plc unsolicited offer
for Falconbridge. At Phelps Dodge's June 23 closing price of
US$82.95, the total enterprise value of the acquisition by Phelps
Dodge of the combined Inco and Falconbridge is approximately US$40
billion. The acquisition of Falconbridge by Inco is subject to
regulatory approvals and other customary closing conditions, and
Inco's tender offer is expected to close in July. Inco anticipates
conducting a second-stage transaction to acquire the remaining
Falconbridge shares, which is expected to close in August. Upon the
closing of the Phelps Dodge-Inco combination, shareholders of
Falconbridge who have been issued Inco common shares in the
Inco-Falconbridge transaction will be entitled to receive for those
shares the same package of cash and Phelps Dodge shares as will
other Inco shareholders. Phelps Dodge strongly supports Inco's
agreed offer for Falconbridge and has entered into a definitive
agreement under which it will purchase up to US$3.0 billion of
convertible subordinated notes issued by Inco to provide Inco with
substantial additional liquidity at the time of its purchase of
Falconbridge common shares and to satisfy related dissent rights,
as needed. The convertible subordinated notes will only be funded
in the event the Inco/Falconbridge combination is consummated. The
instrument will be redeemable for cash at any time by Inco after
the merger with Falconbridge and may be converted at any time
beginning six months after issuance by Phelps Dodge at a conversion
rate equal to 95 percent of the market value of Inco's common
shares plus accrued interest of the security at the time of
conversion. The instrument will bear an 8 percent PIK coupon. The
issuance of the convertible subordinated notes will be subject to
regulatory approval. Phelps Dodge intends to complete its share
repurchase program within the 12 months after closing of the Inco
transaction in an amount equal to US$5 billion, less the amount of
any convertible subordinated notes purchased by Phelps Dodge. The
transaction between Phelps Dodge and Inco is not conditioned upon
the completion of the Inco and Falconbridge combination. Thus, in
the event the Inco-Falconbridge merger is not completed, Inco
shareholders will receive the same 0.672 shares of Phelps Dodge and
C$17.50 per share in cash that they would have received in the
proposed three-way combination. Should Inco not complete the
Falconbridge transaction, the Phelps Dodge board of directors
intends to execute the full US$5.0 billion share repurchase program
within 12 months of closing a transaction with Inco. Inco has
agreed to pay a break-up fee to Phelps Dodge under certain
circumstances of US$475 million on a stand-alone basis and US$925
million in conjunction with its combination with Falconbridge. Inco
has also given Phelps Dodge certain other customary rights,
including a right to match competing offers. Phelps Dodge has
agreed to pay Inco a US$500 million break-up fee under certain
circumstances. Phelps Dodge has received financing commitments from
Citigroup and HSBC that may be drawn upon to fund the contemplated
transactions and the up to US$5.0 billion share repurchase program.
Inco has received additional financing commitments from Morgan
Stanley, Goldman, Sachs & Co., Royal Bank of Canada, and Bank
of Nova Scotia in support of the increased cash component of its
revised agreed offer for Falconbridge. After completion of the
transaction, current Phelps Dodge shareholders would own
approximately 40 percent of Phelps Dodge Inco, current Inco
shareholders would own approximately 31 percent, and current
Falconbridge holders would own approximately 29 percent. The
transaction, which is subject to Phelps Dodge and Inco shareholder
approval, regulatory approvals and customary closing conditions, is
expected to close in September 2006. Delivering Significant Value
to Shareholders Through Synergies and Growth The combination of
Phelps Dodge, Inco and Falconbridge is expected to result in total
annual synergies of approximately US$900 million by 2008. This
includes US$550 million in total expected annual synergies from the
combination of Inco and Falconbridge. The net present value of
total synergies, at a 7.0 percent discount rate, is approximately
US$5.8 billion after-tax. The combination brings together three
companies with unique, complementary skill sets. The synergies
previously identified by Inco and Falconbridge will be generated in
part by joint operation of facilities in the Sudbury Basin, where
there are contiguous, interwoven mines and processing facilities.
Consolidation of the district allows feed flow changes that result
in production increases and cost reductions. Also, consolidation of
management allows for the sharing of best practices. The inclusion
of Phelps Dodge enhances these synergies. Its three-year-old North
American One Mine processes are an excellent blueprint for the
consolidation of the Sudbury district. In addition, Phelps Dodge
brings a focus on technology that can be applied to improve process
recoveries and throughput in Sudbury and elsewhere. Also, the
larger company will realize savings in procurement and supply-chain
management because of its much larger size. Based on these
synergies, the combination is expected to be immediately accretive
to cash flow and accretive to earnings per share in 2008, excluding
integration and transaction costs. The new, larger company will
benefit from a strengthened financial position to take advantage of
future growth opportunities. This increased financial strength,
coupled with its combined assets and expertise, will enable it to
pursue current and future development projects more effectively.
The combined company will have an impressive list of greenfield and
brownfield projects and expansions. Those now in commissioning or
in the late stages of construction include Voisey's Bay (nickel),
Cerro Verde (copper/molybdenum) and Henderson (molybdenum). Other
projects include Safford (copper), Tenke Fungurume (copper/cobalt),
Climax (molybdenum), Lomas Bayas (copper), Collahuasi
(copper/molybdenum), El Morro (copper), El Pachon (copper), El Abra
(copper), Goro (nickel), Koniambo (nickel), and Nickel Rim
(nickel). Management Team and Board of Directors J. Steven Whisler,
51, chairman and chief executive officer of Phelps Dodge, will be
chairman and chief executive officer of the new company. Scott M.
Hand, 64, chairman and chief executive officer of Inco, will become
vice chairman of Phelps Dodge Inco. Derek Pannell, 60, chief
executive officer of Falconbridge, will become president: Inco
Nickel and will head the new company's nickel, zinc and aluminum
operations. Timothy R. Snider, 56, president and chief operating
officer of Phelps Dodge, will hold the same position in the new
company. Ramiro G. Peru, 50, executive vice president and chief
financial officer of Phelps Dodge, will be the chief financial
officer of the new company. Whisler, Snider and Peru will be based
in Phoenix. Hand and Pannell will be based in Toronto. The board of
directors of the new company will be composed of 15 members, 11
from the board of Phelps Dodge and four from the boards of Inco and
Falconbridge. Benefits to Canada Canada will derive benefits not
only from the new Phelps Dodge Inco's scale and global reach, but
its continuing strong commitment to Canada overall and the local
communities in which it operates. As the largest mining company
based in North America, Phelps Dodge Inco will have ready access to
global capital markets and be well positioned to draw upon its
leading market position, combined management teams, technical depth
and the expertise of its collective workforce. In Canada, Phelps
Dodge Inco will continue to pursue all major capital expenditure
projects that Inco and Falconbridge have initiated. Regarding
Canadian employment, Phelps Dodge Inco will not lay off any
employees at any of its Canadian operating companies for at least
three years after the completion of the transaction, unless those
employees are part of an already announced shutdown or reduction in
workforce. Canadians will occupy a majority of management positions
of the Canadian businesses at Phelps Dodge Inco. While there will
be some head-office workforce reduction, as is natural in any such
combination, Phelps Dodge Inco will provide severance and make
available appropriate outplacement and/or counseling services.
Phelps Dodge Inco has committed to establish the head office of the
global nickel business in Toronto. The company will maintain a
major nickel research and development facility in Canada, and
continue all existing Canadian exploration activities for a period
of at least three years. Additionally, Phelps Dodge Inco will abide
by any practices or agreements engaged in by Inco or Falconbridge
with provincial Canadian governments concerning the export or
processing of intermediate ore products. In local communities,
Phelps Dodge Inco will maintain all community and educational
programs currently in place. In Ontario, Manitoba, Newfoundland and
Labrador, Quebec, and New Brunswick, Phelps Dodge Inco has
committed to direct resources toward training, education and other
initiatives with the specific goal of training potential new
employees, as well as enhancing the resources and quality of
training available to existing employees. The new company will also
maintain and carry forward the practice of environmental protection
established over many years by each company, as well as keeping an
unwavering focus on worker health and safety. A World Leader in
Metals and Mining The combined entity will have large-scale
production capabilities, significant proven and probable reserves
in all of its core commodities and a diversified asset base. Copper
Pro-forma 2005 copper production for the combined entity was 3.4
billion pounds. Pro-forma 2005 copper revenues were US$11.13
billion. Phelps Dodge Inco will be the world's largest publicly
traded copper corporation after the closing. Nickel Pro-forma 2005
nickel production for the combined entity was 738 million pounds.
Pro-forma 2005 nickel revenues were US$5.8 billion. Upon closing of
the transaction, Phelps Dodge Inco will be the world's largest
nickel producer. Molybdenum Pro-forma 2005 molybdenum production
for the combined entity was 68 million pounds. Pro-forma 2005
molybdenum revenues were US$1.89 billion. Phelps Dodge Inco will be
the world's second largest producer of molybdenum. Cobalt Pro-forma
2005 cobalt production for the combined entity was 14 million
pounds. Pro-forma 2005 cobalt revenues were US$210 million. Phelps
Dodge Inco will be the world's third-largest producer of cobalt.
Webcast Management of Phelps Dodge, Inco and Falconbridge will host
a webcast for investors today at 9:00 a.m. eastern time, to discuss
the details of the transaction. The webcast can be accessed at
http://www.phelpsdodgeinco.com/ . Phelps Dodge is one of the
world's leading producers of copper and molybdenum and is the
largest producer of molybdenum-based chemicals and continuous-cast
copper rod. The company employs 13,500 people worldwide. Inco is a
primary metals company. In business for 100 years, it is one of
Canada's best-known companies and largest exporters. It employs
12,000 people around the world at mining operations, production
facilities, a research center and through its marketing and sales
network. Falconbridge is a leading copper and nickel company with
investments in fully integrated zinc and aluminum assets. Its
primary focus is the identification and development of world-class
copper and nickel ore bodies. It employs 14,500 people at its
operations and offices in 18 countries. Advisors and Counsel Phelps
Dodge is being advised by Citigroup Corporate and Investment
Banking and by HSBC Securities. Phelps Dodge's counsel are
Debevoise & Plimpton LLP and Heenan Blaikie LLP. Inco is being
advised by Morgan Stanley, RBC Capital Markets and Goldman Sachs.
Inco's counsel are Sullivan & Cromwell and Osler, Hoskin &
Harcourt LLP. Falconbridge is being advised by CIBC World Markets.
Falconbridge's counsel are McCarthy Tetrault LLP and Fried Frank
Harris Shriver & Jacobson LLP. Forward-Looking Statements These
materials include "forward-looking statements" (as defined in
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934) including statements regarding,
among other things, the benefits of the combination with Inco and
the combined company's plans, objectives, expectations and
intentions. All statements other than historical information are
forward-looking statements. These forward-looking statements are
based on management's current beliefs and expectations, speak only
as of the date made, and are subject to a number of significant
risks and uncertainties that cannot be predicted or quantified and
are beyond our control. Future developments and actual results
could differ materially from those set forth in, contemplated by,
or underlying the forward-looking statements. The following
factors, among others, could cause actual results to differ from
those described in the forward-looking statements in this
documents: (i) the ability to obtain governmental approvals of the
combination on the proposed terms and schedule; (ii) the failure of
Inco's shareholders to approve the plan of arrangement; (iii) the
failure of Phelps Dodge's shareholders to authorize the issuance of
Phelps Dodge common shares, the change of Phelps Dodge's name to
Phelps Dodge Inco and an increase in the size of Phelps Dodge's
board of directors as required under the combination agreement;
(iv) the risks that the businesses of Phelps Dodge and Inco and/or
Falconbridge will not be integrated successfully; (v) the risks
that the cost savings, growth prospects and any other synergies
from the combination may not be fully realized or may take longer
to realize than expected; (vi) the combined company's inability to
refinance indebtedness incurred in connection with the combination
on favorable terms or at all; (vii) the possibility that Phelps
Dodge will combine with Inco only; (viii) the possible impairment
of goodwill and other long-lived assets resulting from the
combination and the resulting impact on the combined company's
assets and earnings; and (ix) additional factors that may affect
future results of the combined company set forth in Phelps Dodge's,
Inco's and Falconbridge's filings with the Securities and Exchange
Commission, which filings are available at the SEC's Web Site at
(http://www.sec.gov/). Except as required by law, we are under no
obligation, and expressly disclaim any obligation, to update, alter
or otherwise revise any forward-looking statement, whether written
or oral, that may be made from time to time, whether as a result of
new information, future events or otherwise. Supplemental Data
These materials also include terms used to describe supplemental
data. Any such data or terms are not a substitute for any U.S.
generally accepted accounting principle measure and should be
evaluated within the context of our U.S. GAAP results. Any such
references may not be comparable to similarly titled measures
reported by other companies. As required by Regulation G, we have
posted on our Web Site -- http://www.phelpsdodgeinco.com/ -- a full
reconciliation of non-GAAP financial measures to U.S. GAAP
financial measures. Unless otherwise indicated, all information in
this news release relating to Phelps Dodge is on a post-FIN-46
basis (i.e., Candelaria and El Abra are fully consolidated with
minority interests shown separately rather than a pro rata
consolidation). NOTE: In connection with the proposed combination,
Phelps Dodge Corporation ("Phelps Dodge") intends to file a
preliminary proxy statement on Schedule 14A with the SEC. Investors
are urged to read the proxy statement (including all amendments and
supplements to it) when it is filed because it contains important
information. Investors may obtain free copies of the proxy
statement, as well as other filings containing information about
Phelps Dodge, Inco and Falconbridge, without charge, at the SEC's
Web site (http://www.sec.gov/). Copies of Phelps Dodge's filings
may also be obtained without charge from Phelps Dodge at Phelps
Dodge's Web site (http://www.phelpsdodge.com/) or by directing a
request to Phelps Dodge, One North Central Avenue, Phoenix, Arizona
85004-4415, Attention: Assistant General Counsel and Corporate
Secretary (602) 366-8100. DATASOURCE: Phelps Dodge Corporation,
Inco Limited; Falconbridge Limited CONTACT: Peter J. Faur,
+1-602-366-7993 or Investors: Stanton K. Rideout, +1-602-366-8589,
both of Phelps Dodge Corporation; or Steve Mitchell,
+1-416-361-7950 or Investors: Sandra Scott, +1-416-361-7758, both
of Inco Limited; or Media & Investors: Denis Couture of
Falconbridge Limited, +1-416-982-7020 Web site:
http://www.phelpsdodgeinco.com/ http://www.phelpsdodge.com/
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