Inco Unearths Another Suitor

Once again, real life and reality TV seem to be at odds. "Reality" dating shows start with a pool of desperate attention-seekers, then thin the herd. For Canadian nickel producer Inco (NYSE: N  ) the process seems to be working in reverse. The longer it stays on the dating scene, the more suitors it seems to attract.

Inco has already received competing bids from Teck Cominco and Phelps Dodge (NYSE: PD  ) , and on Friday morning, Brazil's CompanhiaVale do Rio Doce (NYSE: RIO  ) threw its fedora in the ring. Rio Doce's bid is a little unusual; it offers no premium to the current share price, but it's an all-cash bid. While the Cominco and Phelps Dodge offers have a certain amount of uncertainty tied to the value of the would-be acquirer's shares, the Rio Doce bid is worth exactly what it looks like.

I'm not sure there's much to discuss in terms of the benefits of this bid to Inco shareholders. It largely comes down to whether they would rather have a 100% cash offer and no lingering interest in the surviving company, or get a potentially greater total return with a higher level of risk. Let's not forget the possibility that further, higher bids could be in the offing as well. As Arcelor and Guidant both illustrated so clearly, a motivated buyer really will go to the mat to get an asset they covet.

For Rio Doce, this deal makes a certain amount of sense. Not only would it make the company a more sizable player against the likes of Rio Tinto (NYSE: RTP  ) and BHPBilliton (NYSE: BHP  ) , but it would also vault forward the company's plans to expand into non-ferrous metals and diversify away from such a heavy reliance upon iron.

That said, acquisitions at or near cyclical tops rarely build value. Had Rio Doce made this offer in 2002, the price tag would have been about one-fourth of today's price. Even a year ago, the price might have been 50% lower. Has Inco's long-term competitive position improved fourfold in four years?

I'd have preferred to see Rio Doce wait for the bloom to fade from the commodities bull run before pulling out its wallet. Then again, you have to buy businesses when they are for sale -- whether it's a convenient time for you or not. Stay tuned, fellow Fools. I'm sure this isn't the last word in this matter.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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