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R.S.O. 1990, c. S.5, AS AMENDED (the Act)

- AND -





Via conference call, 8:30 p.m. EDT on Thursday, July 20, 2006


Paul M. Moore, Q.C. in Mississauga, Ontario    -     Vice-Chair and Chair of the Panel
Suresh Thakrar  in Mississauga, Ontario          -     Commissioner
David L. Knight, FCA  in Halifax, Nova Scotia    -     Commissioner

Participants in the conference call:

Blake, Cassels & Graydon LLP - Counsel for Teck Cominco Limited
Ernest D. McNee in Toronto, Ontario
R. Seumas M. Woods in Toronto, Ontario
Osler, Hoskin & Harcourt LLP - Counsel for Inco Limited
Larry P. Lowenstein in Toronto, Ontario
Clay Horner in Toronto, Ontario
Donald G. Gilchrist in Toronto, Ontario
Naizam Kanji in Toronto, Ontario - Staff of the Commission
Office of the Secretary to the Commission
John P. Stevenson in Toronto, Ontario - Secretary to the Commission
Christos Grivas in Toronto, Ontario - Legal Counsel










[1]On July 20, 2006 , the Commission issued an order that effectively ended the shareholder rights plan of Inco Limited (Inco) dated September 14, 1998 . The order cease trades as of August 16, 2006 rights, issued or to be issued pursuant to the rights plan, not only against a bid by Teck Cominco Limited (Teck), but against all bids that may arise in the auction for Inco.

[2]The auction for Inco began with the unsolicited take-over bid by Teck, announced on May 8, 2006 , and continued with the combination agreement between Inco and Phelps Dodge Corporation (PhelpsDodge) announced on June 26, 2006 . In the combination agreement, Phelps Dodge agreed to combine with Inco alone in the event that Inco was unable to acquire Falconbridge Limited (Falconbridge).

[3] The combination agreement came about during a concurrent auction for Falconbridge. That auction commenced in October, 2005 with Inco’s friendly take-over bid for Falconbridge, which was protected by a support agreement and a rights plan adopted by Falconbridge, and continued on May 17, 2006 by a hostile bid for Falconbridge by Xstrata Canada Inc. (Xstrata). On June 30, 2006, the Commission ordered that the rights plan adopted by Falconbridge be lifted on either July 28, 2006 or the day on which Xstrata took up a majority of the Falconbridge shares it did not own, whichever came first.

[4] Teck applied to the Commission on July 13, 2006 for an order pursuant to Section 127 of the Securities Act that trading cease in respect of any securities issued, or to be issued, under or in connection with the Inco rights plan. The hearing of the Teck application was scheduled for July 21, 2006. On the evening before the scheduled hearing date, the parties agreed to a resolution of the matter and they presented the Commission with a draft form of order to which they consented.

[5] In order to determine whether it was in the public interest to issue the order in the form agreed to by the parties, the Commission held an informal hearing by telephone conference, arranged on an expedited basis that night. At the hearing, the parties consented to having the rights plan lifted against all future bids as of August 16, 2006.

[6] The agreement and consent of the parties to the form and content of an order, while significant, was not alone determinative of whether the order should be issued. We had to be satisfied that it was in the public interest to make the order.

[7] Although this was an informal hearing by conference call, we had before us materials and submissions prepared for the hearing that was scheduled to be heard the next morning.

[8] After reviewing the draft order and the materials filed by the parties, and upon hearing the submissions of counsel, we were satisfied that it was in the public interest to make the order because the rights plan would be lifted as against any and all bidders.

[9] Counsel requested that we issue reasons for the order.


[10] The parties agreed that the Inco rights plan should be lifted in respect of the Teck bid. The only issues for us were: (1) whether the rights plan should cease to apply to the Teck bid effective from August 16, 2006, and (2) whether the rights plan should cease to apply in respect of any other bids from August 16, 2006.


[11] Inco’s rights plan was typical. It included provisions that could trigger a massive dilution of the value of Inco shares in the hands of an unfriendly bidder if the bidder acquired 20% or more of the outstanding shares of Inco unless the acquisition transaction was a “permitted bid”. The Teck bid met all but one of the conditions of a permitted bid: it was made to all holders of Inco shares; it was open for at least 60 days, subject to the qualification that shares could be taken up and paid for if more than 50% of shares had been tendered and not withdrawn; and it provided that Inco shares could be deposited and then withdrawn until they were paid for. The Teck bid did not provide for the take-up of additional shares deposited after the first take-up of shares under the bid because of United States securities law concerns. United States securities law prohibits, absent a ruling otherwise, multiple take-ups in bids which, like the Teck Offer, include both cash and share consideration. Teck’s bid was conditional on Inco not acquiring Falconbridge. On May 29, 2006, Inco’s board advised shareholders to reject the Teck bid.

[12] On June 21, 2006, Teck received U.S. Securities and Exchange Commission approval to allow for additional take-ups under its bid, thus enabling it to amend its bid to comply with the full requirements for a permitted bid. Teck then announced that it would amend its bid to conform with the requirements for a permitted bid. Inco maintained that for a bid to be a permitted bid, it needed to meet all requirements for a permitted bid from its start.

[13] In response to the Teck bid announced on May 8, 2006, Inco’s board instructed management to explore and investigate with the assistance and advice of its financial advisors and legal advisors other possible transactions. Inco representatives had discussions with third parties, exploring possible transactions or combinations thereof, including: corporate transactions that would allow Inco to remain as an independent, publicly held company; a merger, amalgamation or other combination involving Inco, including without limitation certain possible three-way transactions including a transaction with both Falconbridge and Teck; the issuance of equity or other securities of Inco; and the acquisition by Inco or others of Inco shares by take-over bid or otherwise, all subject to compliance with its obligations under the Falconbridge support agreement.

[14] On June 26, 2006, Inco, Falconbridge and Phelps Dodge announced that they had entered into a number of agreements including a proposed combination of Inco and Phelps Dodge pursuant to a statutory plan of arrangement under which Inco would amalgamate with a wholly-owned subsidiary of Phelps Dodge and become a wholly-owned subsidiary of Phelps Dodge (the Phelps Dodge Arrangement). The Phelps Dodge Arrangement is subject to, among other things, approvals from the shareholders of Phelps Dodge, the shareholders of Inco and the Ontario Superior Court of Justice. In addition, the transaction is subject to antitrust clearance and Investment Canada approval. In its press release describing the transaction Phelps Dodge states that it expects that the transaction will close in September 2006. The Phelps Dodge Arrangement is not conditional upon the completion of the Inco bid for Falconbridge.

[15] Under the terms of the Phelps Dodge Arrangement, pending completion of the proposed arrangement between Inco and Phelps Dodge, Inco’s board agreed not to solicit any proposals relating to alternative acquisition transactions and, subject to certain exceptions, not to engage in any discussions or negotiations, or provide confidential information, in connection with any proposals for alternate acquisition transactions. Instead, Inco’s board agreed to recommend to its shareholders that they vote in favour of the arrangement with Phelps Dodge.

[16] On July 19, 2006, Xstrata extended its bid for Falconbridge to August 14, 2006.


Effective date of August 16, 2006

[17] The parties agreed to August 16, 2006 as the effective date for trading to cease in any securities issued, or to be issued, under or in connection with the Inco rights plan.

[18] We found that August 16, 2006, as the effective date, was in the public interest. Xstrata’s bid for Falconbridge was to expire on August 14, 2006. In view of Teck’s agreement to the August 16 date, we surmised that Teck would extend its bid for Inco at least to that date. Fixing the effective date as August 16 would clarify by that date that, whether or not the Teck bid had become a permitted bid, the Inco rights plan would cease to apply to the Teck bid.

Lifting the rights plan as against all bidders

[19] The draft consent order that was submitted to us stated that the rights plan would be lifted only as against the Teck bid, and was conditional on an amendment to the Teck bid. We asked the parties to make submissions on whether lifting the cease trade should benefit all future bids as well. The submissions by counsel for Inco for restricting the applicability of the order to the Teck bid were along two lines. First, in a take-over bid hearing a panel of the Commission can only deal with the parties and the application before it. Second, the rights plan must be maintained as against unknown future bidders because future bids may be coercive or otherwise unfair to Inco’s shareholders; Inco’s management must be permitted the opportunity to protect against such bids.

[20] We disagreed with the submissions.

[21] Part XX of the Act sets out a regime for take-over bids, including provisions on timing. National Policy 62-202 illuminates the objectives behind Part XX. The primary objective of the take-over bid provisions is the protection of the bona fide interests of the shareholders of the target company. A secondary objective is to provide a regulatory framework within which take-over bids may proceed in an open and even-handed environment. The objectives are interrelated.

[22] Unrestricted auctions produce the most desirable results in take-over contests. In the case law, the Commission makes it clear that rights plans are tolerated, not promoted, and then only to the extent that they allow a board of directors of the target company to fulfil its fiduciary duty—for example, to seek out a better bid to which shareholders may choose to tender their shares.

[23] In this case, Inco has been in play at least since May 8, 2006 when Teck announced its bid. After that, Inco’s board conducted an extensive solicitation to seek out a better deal. The solicitation resulted in the Phelps Dodge Arrangement, as part of which Phelps Dodge agreed to acquire Inco on a stand alone basis if Inco’s bid for Falconbridge was not successful.

[24] There was an auction underway. The affidavits before us and the public record suggested to us that it was possibly not closed. There was a real and substantial possibility that other potential bidders would emerge to acquire Inco on a standalone basis. Yet the Inco board was restricted from soliciting other offers. The Phelps Dodge Arrangement limited the ability of Inco’s board to take further action in encouraging additional bidders to come forward or to cooperate with them if they came forward uninvited, subject to the superior proposal provisions of the Phelps Dodge Arrangement.

[25] We were concerned that Phelps Dodge, Inco and Teck should not be in a privileged position because of the rights plan. Lifting the rights plan as against all potential bidders would ensure that the rights plan would not stand in the way of acceptance of any bid by Inco’s shareholders, who are the ultimate arbiters of the value of the company. Such action is also consistent with the Commission’s decisions in Re: Cara Operations Ltd. (2002), 25 O.S.C.B. 7997) and in Re: Falconbridge Limited (order issued on June 30, 2006 and reasons issued August 17, 2006) where rights plans were lifted for all bids.

[26] Counsel for Inco warned that lifting the rights plan against all future bidders could leave the shareholders of Inco vulnerable to a coercive or otherwise unfair bid. While there may be a remote possibility of such a bid, we did not imagine that the Commission would sit idly by in such a situation.


[27] At this stage in the contest for control of Inco, it will be market forces and the shareholders acting in their own best interests that will decide the outcome. We have approved the amended consent order in the public interest so that shareholders may exercise their rights in their own best interests.

Dated at Toronto, this 28th day of August, 2006.





”Paul M. Moore”
Paul M. Moore, Q.C.


” Suresh Thakrar ”
Suresh Thakrar


”David L. Knight“
David L. Knight, FCA