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Freeport Closes $19 Billion Energy Deals
Freeport-McMoRan Copper & Gold Inc. ( FCX - Analyst Report) has completed its earlier-announced acquisition of Plains Exploration & Production Company and McMoRan Exploration Co. . The mining giant landed definitive merger pacts to buy these companies in late 2012.
Freeport closed its takeover of independent oil and gas company Plains on May 31. Moreover, it wrapped up the acquisition of exploration and production company McMoRan Exploration on June 3 following the approval of the transaction by McMoRan shareholders.
The total value of the twin transaction is $19 billion including $10 billion of debt assumed by Freeport as part of the deal, cash consideration of $5.5 billion and 91 million Freeport shares (worth $2.8 billion as of May 31, 2013).
The value of the Plains acquisition is roughly $16.3 billion including the assumption of $9.7 billion of Plains debt and cash payment of roughly $3.3 billion. 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 will pay $14.75 per share in cash aggregating $2.2 billion for shares it does not already hold. McMoRan shareholders will also get 1.15 units of a royalty trust for each share they hold.
The acquisitions represent a part of Freeport’s strategy to diversify from its bread-and-butter copper mining business. The merger makes 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 provides Freeport a significant exposure to energy markets.
Freeport expects the combined entity to generate operating cash flows of roughly $9 billion and earnings before interest, taxes, depreciation, and amortization (EBITDA) of around $12 billion in 2013. The company sees significant synergies from the acquisitions.
With regards to financial profile, Freeport noted that pro forma sales for twelve months ended Dec 31, 2012, aggregated $22.7 billion with pro forma EBITDA totaling $10.5 billion. Total debt, as of Mar 31, 2013, was roughly $20.8 billion with consolidated cash of $4.6 billion (barring supplemental dividends paid or to be paid aggregating $1.4 billion).
Freeport plans to use cash flows of the combined entity to pare debt to a targeted level of $12 billion over the next three years. Moreover, as communicated earlier, the company plans to sale $1.5 billion of assets and cut its capital spending to offset the cash required for the payment of supplemental dividends.
Freeport currently holds a short-term Zacks Rank #3 (Hold). Lake Shore Gold Corp. and Hi-Crush Partners LP ( HCLP - Snapshot Report) also belong to the mining industry with each retaining a Zacks Rank #2 (Buy).