The idea behind the Freeport McMoran purchase of cooper company Phelps Dodge is that high cooper prices would cover the premium price of the deal.
Cooper prices have now dropped to $2.59 a pound, down 36% from May.
Freeport’s stock is down 29% since April to $51. But, Phelp’s shares are down only 7% to $116.
The disparity in the stock prices of the two companies is a problem. Freeport now has a market cap of just over $10 billion. Phelps is at almost $24 billion. Freeport’s deal was a 35% premium to the price of Phelps shares at the time of the deal.
No other mining company has made an offer for Phelps, probably a sign that with falling cooper, the price is much too rich.
Either the Freeport deal will die, or the combined company will be a financial mess.
Douglas A. McIntryre can be reached at [email protected]. He does not own securities in companies that he writes about.
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