Inco cancels Phelps merger

Inco Ltd.cancelled its $19-billion marriage with Phelps Dodge Corp. on Tuesday, clearing the way for Brazil's Companhia do Vale Rio Doce (CVRD) to take over one of Canada's pre-eminent mining companies.

Inco has already called off Thursday's special meeting that would have allowed shareholders to vote on the merger.

And it has announced that it will pay Phelps Dodge a termination fee of $125 million US, with another $350 million US coming if Inco signs a deal with CVRD before the Thursday.

Scott Hand, Inco's chairman and chief executive officer, said the board decided to abandon the Phelps Dodge merger after it sifted through proxies that shareholders were sending in.

"It was very clear from the proxies we received that Inco shareholders were not going to support the Phelps Dodge transaction, so the two companies agreed that it was in our respective best interests to move on," he said in a statement before markets opened Tuesday.

With Phelps Dodge gone, Inco said it has the right to search out another suitor. But the only potential merger still on the table is with CVRD, the lone survivor of a war of attrition that began several months ago.

Inco said it "continues to be open to entering into discussions or negotiations" with CVRD, but it said there were no guarantees the deal would still go through.

A merger with CVRD would end one of the most complex and long-winded proxy battles in Canadian history.

All-cash offer

Inco initially tried to buy its neighbour Falconbridge Ltd., bringing in Phelps Dodge to help swing the $40-billion US deal. But Swiss-based Xstrata PLC eventually snared Falconbridge with an all-cash offer.

Teck Cominco Ltd. entered the bidding in mid-August with a $17.8-billion Cdn bid that was contingent on the company raising a startling $5.7 billion in an overnight share offering.

Teck Cominco couldnt swing the deal and backed away from the merger.

But CVRD's offerhas offered a tempting$86 cash a share or $17.6 billion, plus the assumption of $2 billion of Inco's debt.

Inco shares closed down 26 cents at $85.60 on the Toronto Stock Exchange Tuesday, while Phelps rose $2.73 on the news to $93.48 US on the New York Stock Exchange.

CVRD rose 61 cents, or 2.7 per cent, to $22.87 USon the NYSE.