Freeport-McMoRan Returns to the Energy Business

Offshore drill rig
Offshore drill rig

At least one big mining firm has made acquisitions in the energy field in an effort to boost profits in the face of a slowdown in demand for mined materials. BHP Billiton PLC (NYSE: BHP) spent about $20 billion last year on U.S. energy assets.

This morning, U.S.-based miner Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) has announced that it will acquire McMoRan Exploration Co. (NYSE: MMR) and Plains Exploration & Production Co. (NYSE: PXP) for total consideration of $20 billion. Freeport will pay $6.9 billion in cash and stock for Plains and $2.1 billion net in cash for McMoRan. Freeport and Plains already own 36% of McMoRan. McMoRan Exploration was spun-off Freeport in 1994.

Freeport will pay the equivalent of $50 a share for Plains, which includes 0.6531 shares of Freeport stock and $25 in cash for each share of Plains. McMoRan shareholders will receive $14.75 in cash and 1.15 shares in a royalty trust that is planned to hold a 5% royalty interest "in future production from McMoRan's existing ultra-deep exploration properties."

The acquisition of Plains offers a 39% premium to that company's closing price last night, while the offer for McMoRan represents a premium of 74% to last night's closing price.

Freeport has received a financing commitment of $9.5 billion from J.P. Morgan Chase & Co. (NYSE: JPM) to fund the cash portion of the deals and to repay Plains' outstanding debt. Freeport notes, "After giving effect to the transaction, estimated pro forma total debt at September 30, 2012, is approximately $20 billion, or approximately $16.3 billion net of cash." The transactions are expected to close in the second quarter of 2013.

Shares of Plains are trading up about 25% in the premarket this morning, at $44.97 in a 52-week range of $30.12 to $47.13.

Shares of McMoRan are trading up 74.4% at $14.75 in a 52-week range of $7.25 to $16.56.

Freeport's shares are trading down 13% at $33.29 in a 52-week range of $31.08 to $48.96.

The press announcement is available here.

Paul Ausick

Filed under: 24/7 Wall St. Wire, Commodities, Mergers & Acquisitions, Mergers and Buy Outs, Oil & Gas Tagged: BHP, FCX, JPM, MMR, PXP