Freeport-McMoRan Copper & Gold Inc. (FCX) and Phelps Dodge Corporation announced November 19 that they have signed a definitive merger agreement under which FCX will acquire Phelps Dodge for approximately $25.9 billion in cash and stock, creating the world’s largest publicly traded copper company.
The combined company will be a new industry leader with large, long-lived, geographically diverse assets and significant proven and probable reserves of copper, gold and molybdenum. The company’s increased scale of operations, management depth and strengthened cash flow will provide an improved platform to capitalize on growth opportunities in the global market.
The combined company will be the largest North American-based mining company. The company will enjoy an excellent cost position, long reserve life, a diversified geographic footprint, and an attractive growth profile. FCX currently operates the world-class Grasberg mine, located in
James R. Moffett, chairman of the board of FCX, said: “This transaction combines two leading mining companies to form a strong industry leader at a time when we see significant long-term opportunities in our industry. FCX has been built through our exploration and development capabilities, and we will focus on aggressively pursuing opportunities in the extensive Phelps Dodge asset portfolio.”
Richard C. Adkerson, FCX’s president and chief executive officer, said: “This acquisition is financially compelling for FCX shareholders, who will benefit from significant cash flow accretion, lower cost of capital, and improved geographic and asset diversification. The new FCX will continue to invest in future growth opportunities with high rates of return and will aggressively seek to reduce debt incurred in the acquisition using the substantial free cash flow generated from the combined business. Together, FCX and Phelps Dodge will have the size, management depth and financial strength to optimize existing operations and accelerate our growth by aggressively pursuing promising new development projects, exploration and acquisitions. We are enthusiastic about the addition of Phelps Dodge’s highly regarded mining team, which will complement our existing organization, and are delighted to welcome Phelps Dodge’s talented team to the FCX family.”
J. Steven Whisler, chairman and chief executive officer of Phelps Dodge, said: “This transaction provides Phelps Dodge shareholders a significant premium for their shares and gives them the opportunity to participate in the upside potential of a geographically diversified industry leader possessing the scale and asset quality to compete on the global stage successfully. I believe our management team, with its industry-recognized reputation for operational excellence and technological innovation, possesses the skills in open pit and underground mining and mineral processing to add value to FCX’s operations. We look forward to working with FCX to realize all of the benefits of this combination, and its exciting portfolio of growth and expansion projects, for our shareholders, customers, employees and suppliers.”
Under the terms of the transaction, FCX will acquire all of the outstanding common shares of Phelps Dodge for a combination of cash and common shares of FCX for a total consideration of $126.46 per Phelps Dodge share, based on the closing price of FCX stock on November 17, 2006. Each Phelps Dodge shareholder would receive $88.00 per share in cash plus 0.67 common shares of FCX. This represents a premium of 33 percent to Phelps Dodge’s closing price on November 17, 2006, and 29 percent to its one-month average price at that date.
The cash portion of $18 billion represents approximately 70 percent of the total consideration. In addition, FCX would deliver a total of 137 million shares to Phelps Dodge shareholders, resulting in Phelps Dodge shareholders owning approximately 38 percent of the combined company on a fully diluted basis.
The boards of directors of FCX and Phelps Dodge have each unanimously approved the terms of the agreement and have recommended that their shareholders approve the transaction. The transaction is subject to the approval of the shareholders of FCX and Phelps Dodge, receipt of regulatory approvals and customary closing conditions. The transaction is expected to close at the end of the first quarter of 2007.
FCX has received financing commitments from JPMorgan and Merrill Lynch to fund the cash required to complete the transaction. After giving effect to the transaction, estimated pro forma total debt at December 31, 2006, would be approximately $17.6 billion, or approximately $15 billion net of cash.