Inco admits defeat, cancels Falconbridge takeover bid

Inco Ltd. has bowed out of the bidding for Canadian rival Falconbridge Ltd. after failing to get enough investor support for its offer.

Inco said its offer expired at midnight ET Thursday, meaning that Switzerland's Xstrata PLC will likely emerge the winner in the takeover fight for Falconbridge.

"Though a large number of Falconbridge shareholders supported our offer, unfortunately it wasn't enough,"Scott Hand, chairman and chief executive officer of Inco, said Friday morning.

Inco had set a minimum condition that 50.01 per cent of Falconbridge shareholders had to accept its friendly offer byThursday night's deadline.

Xstrata, which has a bid of $63.25 per share in cash on the table for Falconbridge, said Thursday it would begin buying shares of its target on the open market.

Xstrata said it will buy up to five per cent of Falconbridge's shares that way, bumping up its stake in the company to 25 per cent from its current holding of 20 per cent.

Merger deal continues

Inco, meanwhile, said it plans to continue with its deal to merge with U.S. mining company Phelps Dodge. The merger was originally planned to include Falconbridge in a three-way union worth $40 billion.

"Based on the combined company's premier asset base, the outlook for sustained long-term high metals prices and strong cash flows, the two-way combination is a winning option for the shareholders of both companies," Hand said.

"We also believe that it is clearly superior to the competing bid for Inco put forward by Teck Cominco," Hand added, referring to a hostile bid on the table from the Vancouver-based company.

As a result of Inco not extending its offer and failing to acquire the necessary minimum tender from Falconbridge shareholders,Falconbridge has to make a$150-million US paymentto Inco. If Xstrata's offer for Falconbridge is successful, a further $300 million US will be payable to Inco.

In a news release, Xstratachief executive officerMick Davis said he welcomed the latestdevelopments and encouraged Falconbridge shareholders to tender their holdings to his company's offer.

On the TSX on Friday, shares of Inco rose $2.56 to close at $86.57, while Falconbridge was up five cents at $62.23.