Freeport makes $9 billion energy bet; Wall Street pans deal

Wed Dec 5, 2012 2:12pm EST
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By Michael Erman and Julie Gordon

(Reuters) - Freeport-McMoRan Copper & Gold Inc on Wednesday said it struck a deal to buy Plains Exploration & Production Co and McMoRan Exploration Co for a total of $9 billion in a bold bid to diversify into the U.S. energy sector.

But Freeport's shares tumbled 14 percent and the cost of protecting its debt against default soared as investors and analysts slammed the move as unnecessary. A managing director at one of the company's top-five shareholders said management had done nothing to justify the combination.

On paper the deal reshapes Freeport, which is one of the world's largest copper miners and is concentrated outside the United States. Plains and McMoRan are concentrated in energy plays in California, Texas and the Gulf of Mexico. About a quarter of the combined company's 2013 operating earnings would come from oil and gas.

Freeport is paying a premium of 39 percent for Plains and 74 percent for McMoRan, based on their closing stock prices on Tuesday, for the chance to explore new opportunities, given the difficulty in finding and developing attractive copper assets.

"I haven't heard anything on this call that in any way justifies why these companies should be put together," Evy Hambro, a managing director at BlackRock, said in the most pointed comments on a contentious conference call.

Units of BlackRock control 6.4 percent of Freeport, according to Thomson Reuters data.

Hambro, like analysts earlier in the day, said Freeport investors wanted copper exposure, and that if they wanted to invest in oil and gas they could have done so directly.

If successful, the deal would unite companies with a shared history. Both Freeport-McMoRan Copper & Gold and the company now known as McMoRan Exploration Co were spun off in the 1980s and 1990s from the former Freeport-McMoRan Inc.   Continued...