NEW YORK Freeport-McMoRan
Copper & Gold Inc.s share price logged a double-digit
decline Wednesday after the company announced its $9-billion
push into the energy business, with analysts criticizing the
move as an unhappy marriage between two incompatible
"I dont see any reason why
these two disparate sets of assets need to be together," Daniel
Rohr, an analyst at Chicago-based Morningstar Inc., told
AMM. "Theres nothing complementary here."
Freeport on Wednesday announced
definitive plans to acquire oil and gas producer Plains
Exploration & Production Co. for $6.9 billion in cash and
stock, as well as oil and gas producer McMoRan Exploration for
$3.4 billion in cash, or $2.1 billion net after taking into
account the copper and gold miners and Plains
Explorations existing stakes in the business. Included in
the deal are Plain Explorations oil and gas assets in the
Gulf of Mexico, onshore production at Eagle Ford in Texas and
Haynesville, La.; and oil production facilities in California
amm.com, Dec. 5).
Market analysts and investors
hammered the merger on a conference call Wednesday, questioning
the wisdom of Phoenix-based Freeports diversification and
challenging the company for making the decision without
adequate shareholder input.
"I havent heard anything
on this call that justified why these companies should be put
together," Evy Hambro, managing director of BlackRock Inc.,
said during the conference call. "Congratulations on making one
of the worst teleconferences Ive ever heard to justify a
Investors and analysts also had
sharp words for the companys alleged lack of disclosure
"Investors obviously have the
freedom to diversify by commodity or geography, and (they)
dont need management teams to do it for them," Hambro
Freeports share price
reflected the concern, with shares trading at $38.28 apiece the
evening before the deal was announced, or 19 percent above
Wednesdays $32.16 per share close. Particularly
concerning was that the decision was announced without giving
shareholders an opportunity to vote, Rohr told
"(Investors) woke up yesterday
morning and they found out that they owned a pretty pricey
chunk of two big oil and gas producers," he said.
Analysts and investors said they
were skeptical that the two industries were relevant to each
other, especially since company executives didnt claim
that natural gas and oil production would directly assist in
copper output in the way that Nucor Corp. said its recent push
into natural gas would directly reduce its costs (
amm.com, Nov. 6).
"This deal is not one
thats driven (by) or has significant impact from any
cost-reduction aspects to it," Freeport president Richard
Adkerson conceded during Wednesdays conference call.
"Its not one thats driven by cost synergies."
Company executives insisted,
however, that the company wouldnt lose focus on
continuing investments in global copper projects.
"Its not an A or B
situation. If we could find ways to grow in copper, wed
be doing it," Adkerson said. "You know me well enough to know
theres no bigger positive person about the copper markets
in the world. And Im staying with that. ... If there had
been copper opportunities available to us, we would have taken
advantage of it."
Leon Cooperman, chief executive
officer of investment firm Omega Advisors Inc., also defended
the deal. "Coupled with the diversification of the
companys exposure, ... (it) sounds to me like a good
play," he said during the call.
Three-fourths of the combined
companys earnings would still come from copper output,
Freeport said, with 12 percent of combined earnings of $12
billion before interest, taxes, depreciation and amortization
(Ebitda) generated from oil and gas in 2013 and 48 percent from
U.S. operations, including metal and energy.
"If its successful, (the
deal) could bring tremendous amounts of gas to the market at
exactly the right period of time," Adkerson said.