Stocks; (PD)(FCX)
Freeport McMoRan is buying Phelps Dodge for $25.9 billion to create a cooper company of unprecedented size. The irony of the move is that Phelps Dodge had made an attempt to buy Inco and Falconbridge in an attempt to create a metals production giant. Phelps Dodge shareholders did not like the move.
Phelps Dodge’s shares dropped as low as $74 on concerns about the company’s M&A strategy. The now trade around $95, and the buyout is worth more that $126 a share. Of the purchase price $18 billion is cash that will be financed by debt.
The trouble with the deal is that Wall St. does not think much of the copper business these days. Freeport’s shares have fallen from $72 in May to their current level of $57. News of the announcement could certainly take the stock close to lows of $50.
The deal is probably a bad one for Freeport shareholders. Copper has dropped 10% in the last month. Merrill Lynch says that prices could fall another 30% next year. The big broker thinks that the use of aluminum in place of copper in a number of products could be one factor that will pressure price.
Watch for Freeport McMoran shareholds to exit stage right.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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