Author: Gordon Platt

Three-way Merger Creates Mining Titan

Phelps Dodge, the Phoenix, Arizona-based mining company, agreed with Toronto-based Inco and Falconbridge, a leading producer of copper and nickel, to combine in a $56 billion transaction to create one of the world’s top mining companies.

With operations in more than 40 countries, Phelps Dodge Inco, as the merged entity will be known, will be the world’s leading nickel producer and the largest publicly traded copper producer.

The three-way merger announced in late June capped a three-month period that was the third most active on record for takeovers, with nearly $1 trillion in deals announced worldwide, according to Thomson Financial.

Phelps Dodge has received financing commitments from Citigroup and HSBC that may be drawn upon to fund the takeovers, as well as a planned share-repurchase program of up to $5 billion. Inco has received additional financing commitments from Morgan Stanley, Goldman Sachs, Royal Bank of Canada and Bank of Nova Scotia in support of the increased cash component of its revised agreed offer for Falconbridge.

As Global Finance went to press, Switzerland-based Xstrata was competing for the 80% of Falconbridge it did not already own, through a hostile bid. Phelps Dodge said it would go ahead with its offer for Inco even if Inco’s friendly offer for Falconbridge did not succeed.

Wachovia’s $25.5 billion purchase of Golden West Financial was the biggest merger in the United States in the second quarter of 2006.

Goldman Sachs was the leading financial adviser on M&A; deals in the three months ended June 30, followed by Citigroup and JPMorgan Chase. Sullivan & Cromwell was the top legal adviser.

Cross-border mergers in Europe in the second quarter were led by a $16 billion agreement by Barcelona-based Abertis Infraestructuras to purchase Italian toll-road operator Autostrade. In addition, Paris-based AXA agreed to pay nearly $10 billion for the Winterthur insurance unit of Credit Suisse.

US cross-border M&A; inflows totaled more than $118 billion in the first six months of 2006, up 169% from $44 billion in the same period a year earlier and the highest first-half total since 2000, according to Dealogic. Companies based in the United Kingdom were the most active foreign acquirers of US-based firms in the latest period, with a total volume of $30.6 billion, up from $11.4 billion in the same period of 2005. French companies were second, with $25.4 billion of US-targeted cross-border deals, up from $3 billion in the first half of 2005. France-based Alcatel’s $17.5 billion bid for Lucent Technologies, announced in April, was the largest foreign acquisition of a US-based company in the first six months of 2006, according to Dealogic.

Goldman Sachs leads the acquirer adviser ranking in US cross-border inflows this year, with a volume of $26.5 billion in the first half, followed by Deutsche Bank, with $25.4 billion. JPMorgan leads the target adviser rankings with $31.7 billion, followed by Morgan Stanley with $30.9 billion.

The utility and energy sector was the top US cross-border targeted industry in the first half of 2006, with a volume of $25.2 billion, led by UK-based National Grid’s $12.4 billion offer for KeySpan, the fifth largest distributor of natural gas in the US and the largest in the Northeast.

Three private equity firms agreed in July to take hospital operator HCA private for $21.3 billion of cash and the assumption of $11.7 billion in debt, marking the largest-ever leveraged buyout.



January 1, 2006-July 1, 2006 // Source: Thomson Financial Securities Data
* Figures may not add up, as more than one bank typically obtains credit
for any one transaction.

Gordon Platt