Freeport-McMoRan Copper & Gold said Sunday it will acquire the Phelps Dodge Corp. for $25.9 billion in cash and stock to create the world’s largest publicly traded copper company.
The world’s largest copper company in terms of production is Codelco, or Nacional del Cobre de Chile, owned by the country of Chile.
Richard C. Adkerson, president and CEO of Freeport-Mc-MoRan, said the company has discussed joining with Phelps Dodge for years, but that it was just within the past few weeks that he and J. Steven Whisler, Phelps Dodge’s CEO, began talking and laying the ground work for the “serious negotiations” that yielded the agreement.
The merger is still subject to shareholders and regulators. But Adkerson expects approval by the end of the first quarter of 2007.
Freeport-McMoRan valued its offer at $126.46 per share. That’s 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.”
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 Chase 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.
Faur said company executives could not be reached Sunday evening.
Adkerson said acquiring Phelps Dodge provides an opportunity to diversify with an “attractive set of assets.”
“This gives us good, future growth opportunities,” Adkerson said. Despite the acquisition price, he believes the move will pay dividends for shareholders.
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.
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.”
The combined company’s headquarters will be in Phoenix, although Freeport-McMo-Ran 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 worldwide, 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, 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 thirdquarter profit to $888 million, or $4.36 per share, from $366.1 million, or $1.81 per share, a year earlier.
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.