The largest publicly traded copper producer in the world, Freeport-McMoRan Copper & Gold Inc. (FCX), has decided to buy McMoRan Exploration Co. (MMR) and Plains Exploration & Production Co. (PXP). The deal is estimated to be of worth $9 billion. Thus, Freeport basically returns to its roots in the energy sector.
It is reported that Freeport is going to pay around $50 per share in cash and stocks for Plains. This represents a takeover premium of around 39%, as far as the closing stock prices of the company is concerned (Based on yesterday figures). On the other hand, the holders of each of the McMoRan shares will receive $14.75 and also 1.15 units of royalty trust.
As a part of the deal, Freeport will get oil fields in the Gulf of Mexico. Incidentally, Plains bought assets from RDSA and BP last September for $6.1 billion. McMoRan was actually spun out from Freeport around 18 years ago and its share prices plummeted by 32% in the last 10 days over the concern that its Davy Jones well in the Gulf of Mexico is not performing good enough.
According to Kuni Chen, who is an analyst at the CRT Capital Group LLC, investors are a bit concerned over this acquisition. Kuni added that the market is currently waiting to see that what type of synergy is brought by the combination of a production, oil exploration and mining company. Incidentally, Freeport shares, so far, have not been helped by the acquisition decision, as it plummeted by 13.4%. Plains and McMoRan both saw jumps on the other hand, of 26% and 82% respectively.
Based on early estimates, the combined company may generate earnings of around $12 billion in next year. The operating cash flow is also expected to increase to $9 billion. Freeport stated that the cash portion of this deal will be funded by the $9.5 billion that it received from JPMorgan Chase & Co. because of the financial commitments.
McMoRan and Freeport already have 6 common board members including the CEO of McMoRan, Jim Bob Moffett. Incidentally, Jim is also the chairman of Freeport. B.M. Rankin, who is the co-founder of McMoRan, is the vice president for both McMoRan and Freeport. CEO of Plains, James Flores is also on the board of directors of McMoRan.