Copper titan to buy oil interests

Freeport deal set at $9 billion

— Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, agreed to buy Plains Exploration & Production Co. and McMoRan Exploration Co. for about $9 billion as the company returns to its roots in energy.

Freeport will pay about $50 a share in cash and stock for Plains, representing a takeover premium of about 39 percent based on the company’s closing share prices Tuesday, Phoenix-based Freeport said Wednesday in a statement. Holders of each McMoRan share will get $14.75 in cash and 1.15 units of a royalty trust.

Royalty trusts are corporations that act as owners of mineral rights to mines and oil or natural-gas wells. With royalty trusts, no corporate income tax is paid as long as a certain amount is passed on to shareholders as dividends or distributions.

The deal would give Freeport oil fields in the Gulf of Mexico, after Houston-based Plains bought assets from BP Plc and Royal Dutch Shell Plc for $6.1 billion in September. McMoRan, a company that was spun out of Freeport-McMoRan Inc. 18 years ago, slumped 32 percent in 10 days on concern that its Davy Jones well in the Gulf of Mexico is a dud.

Freeport shares dropped 16 percent to $32.16 in Wednesday trading, while Plains surged 23.4 percent to $44.50 and McMoRan jumped 87 percent to $15.82.

Freeport said it has received financing commitments of $9.5 billion from JPMorgan Chase & Co. to fund the cash portion of the two deals and to repay debt owed by Plains.

The combined company may generate earnings before interest, taxes, depreciation and amortization of about $12 billion and operating cash flows of $9 billion in 2013, Freeport said.

The companies already have connections. Freeport and McMoRan share six board members, including McMo-Ran Chief Executive Officer Jim Bob Moffett, who serves as Freeport’s chairman. B.M. Rankin, co-founder of McMo-Ran with Moffett, serves as vice chairman of both boards. Plains Chief Executive Officer James Flores sits on the board of McMoRan, and Plains owns 31.5 percent of the company.

“I think for the McMoRan shareholders, they’ve got to be thrilled,” said Leo Mariani, an analyst at RBC Capital Markets in Austin, Texas. “At the end of the day, they’ve yet to produce any gas from the ultra-deep shelf or prove that they can.”

McMoRan is seeking to pioneer ultra-deep production with the Davy Jones, a well drilled in shallow water off the Gulf Coast that descends 29,000 feet amid high temperatures and pressures. Complications have repeatedly delayed the project since late 2011 and shares fell after the company said Nov. 23 that it will run a flow test again, without specifying when.

McMoRan operates and has a 63.4 percent working interest in the Davy Jones well, according to statements from the company.

Over the past five years, Plains shares are down 30.5 percent, compared with an 18 percent drop by the Standard & Poor’s Midcap Energy index. The company has oil and natural gas assets in the U.S. Gulf of Mexico and several U.S. onshore regions, including Texas, California and Louisiana.

Plains recently closed separate purchases announced in September for a group of oil fields in the Gulf of Mexico from BP Plc and Royal Dutch Shell Plc at a price of $6.1 billion. Production in the third quarter averaged the equivalent of 106,000 barrels of oil a day in the third quarter, up less than 1 percent from 105,000 a year earlier, the company said Nov. 1 in a statement.

Freeport operates mines in Indonesia, Africa and the Americas. Its CEO, Richard Adkerson, said in April that the company plans to increase annual copper output by more than 25 percent in the next three years through expansions in Peru, the U.S. and the Democratic Republic of Congo. Freeport posted third-quarter net income of $824 million on $4.48 billion in sales.

Credit Suisse Group AG was financial adviser to the special committee of Freeport’s board, providing fairness opinions on both the deals. Wachtell, Lipton, Rosen & Katz acted as legal adviser. Evercore Partners Inc. provided financial advice to the special committee of the McMoRan board, while Weil, Gotshal & Manges LLP served as legal counsel. Barclays Plc acted as financial adviser to Plains, and Latham & Watkins LLP was its legal adviser.

Information for this article was contributed by Edward Klump and David Wethe of Bloomberg News.

Business, Pages 25 on 12/06/2012

Upcoming Events