Inco's VBN shareholders angered with unfair, surprise offer to purchase Voisey's Bay shares
Investors believe it is not in their best interest to tender their VBN shares to Inco
Friday, October 6 2000 - 03:00 AM WIB
Angry investors, calling Inco's surprise buyback of its Voisey's Bay Nickel (VBN) class shares ``unfair'', are opposing the tender.
They believe the nickel giant is counting on long-suffering VBN shareholders to tender their shares for a fraction of their potential value in anticipation of renewed negotiations to develop the massive Labrador project.
Inco is offering to purchase VBN shares for C$7.50 (US$5) in cash and 0.45 of an Inco common share warrant, subject to a minimum share tender of 90 per cent on a fully-diluted basis by 5 p.m. EDT on October 16.
The investors received an evaluation of Inco's offer from a former well- known Wall Street mining and metals analyst who previously covered Inco. On the basis of this and other information, VBN shareholders are being urged to withhold or withdraw any tender of shares for a variety of reasons, including the following:
- Inco has consistently stated that Voisey's Bay is properly valued on its balance sheet. If so, VBN shares should be valued at over C$50 (US$33).
- The Inco-commissioned "Fairness Opinion" makes pessimistic assumptions that production would begin only in late 2005 and only at half the rate previously planned. Should production begin in 2002, as originally predicted, fair value for VBN shares would exceed C$20 (US$13).
- For the warrants to be worth the C$4.37 (US$2.93) that Inco assumes, Inco shares would have to sell at about C$45 (US$30) - a price rarely exceeded in Inco's history.
- While Inco says there have been no talks with the Newfoundland government since last January, Canadian media have quoted Premier Tobin's spokeswoman and other sources as suggesting serious negotiations to end the development impasse are likely to resume shortly.
- Spot nickel prices have more than doubled from their 1998 low of US$1.69, making early development a more lucrative option for Inco.
- With nickel prices booming, Inco is again in a position to resume dividend payments. In similar market conditions, Inco's dividend payments have often exceeded 50 per cent of net income. VBN shareholders are currently entitled to receive a dividend equal to 80 per cent of any cash dividends paid Inco common shares. Under the tender offer, VBN shareholders would receive a dividend, if at all, long after they would under the status quo.
- The current valuation of VBN shares is one-third that set by Inco when issued four years ago.
- Inco's investments in Indonesia and New Caledonia do not carry the political security of the Voisey's Bay development.
- VBN shareholders are awaiting disclosure of exploration results that will allow them to properly assess fair value of their shares.
The investors feel (to use a well-worn but accurate cliche) that, under this buy-back offer, Inco gets the mine and VBN shareholders get the shaft. (*)