Freeport-McMoRan (FCX) Acquisitions 'Not' Diversification Play

December 7, 2012 2:35 PM EST
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This week Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) investors were stunned by a surprise $9 billion acquisition of Plains Exploration & Production Company (NYSE: PXP) and McMoRan Exploration Co. (NYSE: MMR). The fact that these are oil and gas companies makes the deal especially shocking since investors received little notice about plans to diversify away from metals. As it turns out, Freeport-McMoRan's motivation had nothing to do with diversification.

"This acquisition was looked at as a one-off case, not a diversification play," said analyst Sal Tharani of Goldman Sachs, after returning from Freeport-McMoRan investor day. "MMR is in need of cash and PXP's balance sheet is also stretched; the proposed acquisitions could allow the companies to leverage FCX's strong balance sheet."

Tharani said the meeting did not answer all the concerns heard from investors regarding the strategic rationale behind the acquisitions.

"Although we have started to see some investor appetite and interest in FCX post the sell-off, we continue to expect the stock to remain pressured and trade range bound for some time," he said.

Goldman Sachs has a Neutral rating on Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) and a price target of $38.

For an analyst ratings summary and ratings history on Freeport-McMoRan click here. For more ratings news on Freeport-McMoRan click here.

Shares of Freeport-McMoRan closed at $30.81 yesterday.

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