Diane Francis on Business Issues

Monday, August 07, 2006

Teck Cominco, Wal-Mart and Cows

My bet is that Teck Cominco Inc. will end up buying Inco Ltd. and create another Canadian powerhouse in the mining world. To that end, the Vancouver base metal giant upped the ante this Monday.
But the market is saying that the bidding war is probably not over.
Within minutes of Teck's announcement of a higher, more cash-rich bid, the hedge funds bet on a bidding war between Teck and rival Phelps Dodge Corp. of Phoenix, and possibly others.
So I consulted my guru, Terry Ortsland, who was the only one to suggest in this column weeks ago that Phelps Dodge would bid for Inco.
"The knee jerk reaction by the hedge funds this week is that the bids will continue to go up and so far they've been proven right," said Terry, a mining consultant.
Naturally, Teck's CEO Don Lindsay tried his best to dampen the expectation of a bidding war. He said Teck would not chase Inco's stock price upward, but his quoted remarks still leave the door open.
When asked by Reuters if this was Teck's final offer, he said: "I can say it's a very full offer; a very fair offer and that we will only do what makes sense for Teck Cominco's shareholders."
In other words, possibly yes and possibly no.
"I think Teck is a serious, very mathematical company and the numbers right now are pretty stretched," said Terry. "On the other hand, Inco has got a scarcity value - it's the only one in the world with all these attributes: It has huge projects, growth, market share and technology."
Inco also has a good presence in China and Asia which is worth a premium, plus it is also a technology play.
"Nickel is the only commodity that has technology associated with it. It is pretty complicated to produce nickel compared to copper or other metals," he said. "So it deserves a premium in terms of technology. So this company's worth a number which nobody seems to pin down."
Besides being gobbled up by a mining company, Terry believes that institutions and consumers may want to snap up Inco, possibly as partners with Teck or others.
"You've got the stainless steel companies, trading companies and state-owned enterprises," he said. "You've also got financial institutions with trillions of dollars who are looking for investment vehicles at the end of the day."
The August 16 Teck deadline is a challenge for Phelps because it needs lots of approvals whereas Teck's on a fast track, he added.
"And there's no doubt that Teck's offer is superior."

Retail Battles
Wal-Mart Stores Inc. continues to be attacked from many sides. This week, it announced that it will write off US$1 billion after selling its chain of 85 stores in Germany to a retail rival. German unions attacked its hours and its products made by underpaid Chinese workers.
At home, Wal-Mart faces trouble too.
The state of Maryland passed a law requiring any retailer with 10,000 or more employees to earmark 8% of employee salaries towards their health care or write a cheque to the government for the difference. The argument was that Wal-Mart's failure to provide health-care benefits cost Maryland's taxpayers millions because workers are forced many to use the state-supported health care plan Medicaid. Wal-Mart won that case recently, but Maryland's appealing.
Then a few weeks ago, Chicago's city council passed a "living wage" ordinance requiring any "big box" stores (read Wal-Mart and Target Inc.) to pay workers at least US$10 an hour plus US$3 an hour in benefits.

Mad About the Cows
Two interesting developments were announced by agriculture officials in Washington about one week apart. But both are linked.
First, Washington announced that it would cut back its national program to test for mad-cow disease. Then this week it announced that it won't open up the border to more Canadian live cattle since seven cases of mad-cow were discovered north of the border.
Here's the point: the cases were discovered because Canada is being more aggressive and thorough in terms of its testing of cattle. At the same time, the Americans are retreating from testing which makes their cattle look healthier than they probably are.
Put another way, if Canada tested as often as the Americans have there probably wouldn't have been any cases discovered. (By the way, none of these cases got into the food chain.)
So the question north of the border becomes, why not cut back testing to American levels?



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