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Freeport-Plains Merger Gets Shareholder Nod

FCX SBGL

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Mining giant Freeport-McMoRan Copper & Gold Inc. (FCX - Analyst Report) said that its proposed takeover of Plains Exploration & Production Company has been cleared by the latter’s shareholders at a special meeting. Shareholders holding the majority of Plains outstanding shares approved the deal. The transaction is expected to close on May 31.  

Freeport, in late 2012, landed definitive merger pacts to buy independent oil and gas company Plains and exploration and production company McMoRan Exploration Co. for roughly $9 billion. The move represents a part of the company’s strategy to diversify from its bread-and-butter copper mining business.

Under the merger agreement, Plains shareholders were given an option to receive either cash or shares of Freeport common stock for each share they held in Plains, with value equal to the sum of 0.6531 Freeport shares and $25. Freeport is expected to pay roughly $6.9 billion in cash to buy Plains.

Following the approval of the transaction by shareholders, Freeport and Plains announced final allocation of the merger consideration. Based on the expected closing date and the proration formula set in the merger pact, shareholders of Plains who elected to receive Freeport shares will get shares at an exchange ratio of roughly 1.4302 shares of Freeport stock for each Plains share.  

Moreover, Plains shareholders who elected to receive cash will get $46.01 in cash for each share they held in Plains. Lastly, shareholders who did not make a valid election or did not deliver a valid election form before the election deadline will get around 99.5% of their merger consideration in cash (equal to $46.01 for each Plains share and the balance of their consideration in Freeport shares at an exchange ratio of roughly 1.4302 shares of Freeport stock for each Plains share).

For the McMoRan acquisition, Freeport is paying $14.75 per share in cash. McMoRan shareholders will also get 1.15 units of a royalty trust for each share they hold. While the total deal value is $3.4 billion, the actual cash portion of the transaction is $2.1 billion (excluding 36% interest currently owned by Freeport and Plains).

The total transaction value for the twin deals is roughly $20 billion taking into account the debt to be assumed by Freeport as part of the deal. Shareholders of McMoRan will vote on the proposed acquisition at a special shareholders’ meeting on June 3.

The merger is expected to make the combined entity a leading natural resource conglomerate in the U.S., leveraging Freeport’s industry-leading mineral assets and the oil and gas resources of Plains and McMoRan. The addition of Plains’ established oil production assets and McMoRan natural gas drilling capabilities and shallow water ultra-deep properties will provide Freeport a significant exposure to energy markets.

Freeport currently holds a short-term Zacks Rank #3 (Hold).

Sibanye Gold Limited (SBGL), which also belongs to the mining industry, retains a Zacks Rank #1(Strong Buy).

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