Phelps Dodge to Acquire Inco, Falconbridge In Three-Way Deal Worth $56 Billion

Transaction is latest in flurry of a deals in natural resources.

In a deal that will create the world's largest nickel producer, Phelps Dodge Corp. said Monday it is buying Canadian mining companies Inco Ltd. and Falconbridge Ltd. for about $56 billion.

Phelps Dodge, already one of the world's largest copper producers, said the transaction will also make the new company, to be called Phelps Dodge Inco, a leading producer of molybdenum and cobalt.

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 based in Toronto.

Under the terms of the deal, Inco shareholders will receive 0.672 share of Phelps Dodge plus 17.50 Canadian dollars ($15.59) per share in cash for each share of Inco, a premium of 23 percent to Inco's closing price on Friday. At the same time, Inco will increase its previous offer for Falconbridge to 17.50 Canadian dollars ($15.59) from 12.50 Canadian dollars ($11.14) and the exchange ratio to 0.55676 share of Inco, from 0.524 share, for each share of Falconbridge.

The final deal, which is subject to shareholder and regulatory approval, is expected to close in September, with Phelps Dodge shareholders owning about 40 percent of the new company, current Inco shareholders owning about 31 percent, and current Falconbridge holders owning about 29 percent.

The combination is expected to result in total annual synergies of about $900 million by 2008, including $550 million in total expected annual synergies from the Inco-Falconbridge transaction.

The transaction is the latest in a string of deals getting done in the natural resources space recently. On Friday, Anadarko Petroleum agreed to pay $21 billion for Kerr-McGee and Western Gas Resources. Sunday, Mittal Steel agreed Sunday to buy Arcelor for $33.65 billion, ending a long for takeover battle.