Phelps Dodge

(PD) - Get Report

unveiled an ambitious transaction Monday under which it will merge with two Canadian mining giants and create one of the world's biggest producers of nickel and copper.

Arizona-based Phelps Dodge will simultaneously swallow

Inco

(N)

and

Falconbridge

(FAL)

, two Canadian miners who have been trying to merge for months and each of which are the subject of hostile offers from third parties.

Terms of the transaction are complex, calling for Phelps Dodge to acquire Inco for cash and stock worth $13.65 billion while Inco acquires Falconbridge for cash and stock worth $26.59 billion.

Inco shareholders will receive total consideration of $70.60 a share, based on a ratio outlined in the press release announcing the transaction. The shares closed Friday at $58.90 apiece on the

New York Stock Exchange

.

Falconbridge holders, in turn, will get $71.32 a share, including shares of Inco stock made more valuable by Phelps Dodge's bid. Falconbridge closed Friday at $49.03 in New York Stock Exchange trading.

When all is said and done, current Phelps Dodge shareholders will control 40% of the combined entity, while Inco shareholders will own 31% and current Falconbridge holders will own about 29%. The deal, which will create the world's largest nickel producer and the largest publicly traded copper producer, is expected to close in September.

Phelps Dodge simultaneously announced plans to repurchase $5 billion worth of its own stock, starting after the deal closes. It also cut a deal to acquire $3 billion of convertible notes from Inco to help it fund the Falconbridge offer.

Phelps Dodge CEO J. Steven Whisler said: "This transaction represents a unique opportunity in a rapidly consolidating industry to create a global leader based in North America -- home of the world's deepest and most liquid capital markets. The combined company has one of the industry's most exciting portfolios of development projects, and the scale and management expertise to pursue their development successfully.

"The creation of this new company gives us the scale and diversification to manage cyclicality, stabilize earnings and increase shareholder returns. At the same time, we are committed to maintaining an investment-grade credit rating throughout the business cycle."