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Copper giant Freeport-McMoRan buying rival

Freeport-McMoRan Copper & Gold Inc. said Sunday it agreed to acquire Phelps Dodge Corp. for $25.9 billion in cash and stock, creating the world’s largest publicly traded copper company.
/ Source: Reuters

For years, officials at Freeport-McMoRan Copper & Gold Inc. talked about acquiring copper miner Phelps Dodge Corp. But discussions in recent weeks sealed the deal that will create the world’s largest publicly traded copper company.

The companies announced Sunday that Freeport-McMoRan will acquire Phelps Dodge for $25.9 billion in cash and stock.

Freeport-McMoRan valued its offer at $126.46 per share, well above the $95.02 closing price for Phelps Dodge shares in Friday trading on the New York Stock Exchange.

Each Phelps Dodge share would be exchanged for $88 in cash plus 0.67 of a common share of Freeport-McMoRan.

“The offer that they have brought to us is a 33 percent premium over what our stock price was last quoted at,” said Phelps Dodge spokesman Peter Faur. “So for us, it’s a very compelling transaction.”

Richard C. Adkerson, president and CEO of Freeport-McMoRan, said he and J. Steven Whisler, Phelps Dodge’s CEO, began talking and laying the groundwork for “serious negotiations” within the past few weeks.

Adkerson expects shareholders and regulators to approve the deal by the end of the first quarter of 2007. He said acquiring Phelps Dodge provides an opportunity to diversify with an “attractive set of assets.”

“This gives us good, future growth opportunities,” Adkerson said. In spite of the acquisition price, he believes the move will pay dividends for shareholders.

The cash portion of the transaction totals $18 billion and Freeport-McMoRan said it would issue 137 million shares to Phelps Dodge shareholders. That would give them about 38 percent of the combined company on a fully diluted basis. Freeport-McMoRan’s board will also be expanded to include three independent Phelps Dodge directors.

Freeport-McMoRan said JPMorgan and Merrill Lynch have committed to funding the cash portion of the transaction, which will boost its total debt by year-end to about $17.6 billion.

The merged companies will operate under the Freeport-McMoRan Copper & Gold banner, though businesses operating as Phelps Dodge will continue to do so. Adkerson will be the CEO of the merged firms. He said he doesn’t anticipate substantial reductions in work force. He did not elaborate, saying only that isn’t a significant part of the agreement.

The combined company’s headquarters will be in Phoenix, although Freeport-McMoRan will maintain an office in New Orleans for accounting and administrative functions for its operation of the Grasberg mine in Papua, Indonesia. The Papua mine is one of the world’s largest precious metal mines.

Phelps Dodge has operations throughout the world, and is working on an $850 million expansion of its Cerro Verde mine in Peru. It also is building a $550 million copper mine near Safford, Ariz., and planning a $650 million copper mine at Tenke Fungurume in the Democratic Republic of the Congo.

In October, Phelps Dodge reported a steep rise in third-quarter profit to $888 million, or $4.36 per share, from $366.1 million, or $1.81 per share, in the year-earlier quarter.

Freeport-McMoRan more than doubled its third-quarter earnings. The company earned $350.7 million, or $1.67 per share, on revenue of $1.64 billion, compared with $165.8 million, or 86 cents per share, on revenue of $983.3 million a year earlier.

The world’s largest copper company in terms of production is Codelco, or Nacional del Cobre de Chile, owned by the country of Chile.

While the companies say the combination will make it the world’s largest publicly traded copper company — and the largest metals and mining company based in North America — Adkerson said it will hardly have a corner on the market.

“This is a competitive, global marketplace in which there is a number of significant producers,” he said. “We will be a large company, but not anything like one that will cause any concerns.”