Freeport, in Dec 2012, forged definitive merger pacts to buy Plains and McMoRan Exploration Co. for roughly $9 billion. The move represents a part of the company’s strategy to diversify away from its bread-and-butter copper mining business.
Per the agreement, Freeport is buying Tex.-based independent oil and gas company Plains for $50 per share in cash and stock. Plains shareholders have been given an option to receive cash or stock. Freeport is expected to pay $6.9 billion in cash to buy Plains.
Moreover, Freeport is paying $14.75 per share in cash to buy La.-based exploration and production company McMoRan. 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. The transactions are subject to regulatory clearances and approval of the shareholders of the respective companies and are expected to consummate in second-quarter 2013.
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 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. Roughly 74% of the combined company’s projected EBITDA is expected to derive from mining with the balance coming from oil and gas. The company sees significant synergies from the acquisitions.
Freeport currently holds a short-term Zacks Rank #3 (Hold).
Atlatsa Resources Corporation , which also belongs to the mining industry, retains a Zacks Rank #2 (Buy).