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Freeport-McMoRan (FCX) to Acquire McMoRan (MMR), Plains Exploration (PXP) for ~$9B

December 5, 2012 8:41 AM EST Send to a Friend
Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX), Plains Exploration & Production Company (NYSE: PXP) and McMoRan Exploration Co. (NYSE: MMR) announced today that they have signed definitive merger agreements under which FCX will acquire PXP for approximately $6.9 billion in cash and stock and FCX will acquire MMR for approximately $3.4 billion in cash, or $2.1 billion net of 36 percent of the MMR interests currently owned by FCX and PXP. Upon closing, MMR shareholders will also receive a distribution of units in a royalty trust which will hold a 5 percent overriding royalty interest on future production in MMR’s existing shallow water ultra-deep properties.

The combined company is expected to be a premier U.S.-based natural resource company with an industry leading global portfolio of mineral assets, significant oil and gas resources and a growing production profile. FCX’s mineral assets include the world class Grasberg minerals district in Indonesia, the large-scale Morenci minerals district in North America, the Cerro Verde and El Abra operations in South America, the high potential Tenke Fungurume minerals district in the Democratic Republic of Congo (DRC) and a leading global molybdenum business. The addition of a high quality, U.S.-focused oil and gas resource base is expected to provide exposure to energy markets with positive fundamentals, strong margins and cash flows, exploration leverage and financially attractive long-term investment opportunities. The combined company’s long-lived resource base with commodities critical to the world’s economies provides enhanced opportunities to benefit from long-term global economic growth. On a pro forma basis for 2013, approximately 74 percent of the combined company’s estimated EBITDA (equals operating income plus depreciation, depletion, and amortization) is expected to be generated from mining and 26 percent from oil and gas, with 48 percent of combined EBITDA from U.S. operations.

The oil and gas assets being acquired are located in attractive onshore and offshore U.S. geologic basins. PXP’s major assets include its established strong oil production facilities in California, a growing production profile in the onshore Eagle Ford trend in Texas, significant production facilities and growth potential in the Deepwater Gulf of Mexico and large onshore resources in the Haynesville natural gas trend in Louisiana. MMR is an industry leader in the emerging shallow water ultra-deep gas trend with sizeable potential, located offshore in the shallow waters of the Gulf of Mexico and onshore in South Louisiana. The MMR portfolio is expected to provide a large, long-term and low cost source of natural gas production.

James R. Moffett, Chairman of the Board of FCX, said: “FCX has been built through our exploration and development capabilities, and this transaction will enable us to add assets with exceptional exploration and development potential to a world-class mining company to create a premier minerals and oil and gas business focused on value creation for shareholders. The transaction offers significant values to the MMR and PXP shareholders and will enable FCX to build on these values through a much larger, well capitalized platform. We are pleased to add the PXP and MMR oil and gas teams to FCX’s global family. The combined mining and oil and gas teams have significant management depth in operations, technical innovation, project development and financial management, and share a strong commitment to safety, community development and environmental management.”

Richard C. Adkerson, FCX’s President and Chief Executive Officer, said: “The transaction will add a high quality portfolio of assets with strong current cash flows, significant growth options and complementary exposure to markets positioned for global growth in the developed and developing world and reflects our positive view of the factors that will drive demand for copper and other commodities. The oil and gas assets being acquired possess the asset quality characteristics that we seek in our mining business - large scale assets with long lives, low cost and geologic potential to support growth through exploration and development. We anticipate that attractive debt financing markets and our strong balance sheet will allow us to finance a significant portion of the transaction using low cost debt and enable FCX shareholders to retain the significant value we see in our existing asset base, while enhancing future value generation opportunities. We will not diminish our focus in our mining operations on safe and efficient production, executing our organic growth projects, prudent capital allocation and an entrepreneurial spirit of creating values for our shareholders.”

James C. Flores, Chairman and Chief Executive Officer of PXP, said: “I am proud of the accomplishments of our team who have built a strong company and created the opportunity for our shareholders to participate in this exciting transaction. I believe that the addition of PXP’s U.S. oil and gas assets to FCX’s global mining business will establish a very significant, long-term commodities business positioned to generate meaningful returns over an extended period. We look forward to becoming part of FCX’s global team and to the contributions of the PXP assets to the combined company, which we expect will provide strong margins and meaningful reserve additions in the years to come.”

TERMS OF THE TRANSACTIONS

The terms of the transactions were negotiated by and recommended to the board of directors of each of FCX and MMR by separate special committees of independent directors. The transactions are expected to close in the second quarter of 2013.

Plains Exploration & Production Company

FCX has agreed to acquire PXP for per-share consideration consisting of 0.6531 shares of FCX common stock and $25.00 in cash, equivalent to total consideration of $50.00 per PXP share, based on the closing price of FCX stock on December 4, 2012. This represents a premium of 39 percent to the PXP closing price on December 4, 2012, and 42 percent to its one-month average price at that date. PXP shareholders may elect to receive cash or stock consideration, subject to proration in the event of oversubscription, with the value of the cash and stock per-share consideration to be equalized at closing. Aggregate consideration to the PXP shareholders is expected to consist of approximately $3.4 billion in cash and approximately 91 million shares of FCX common stock.

The transaction is subject to the approval of the shareholders of PXP, receipt of regulatory approvals and customary closing conditions.

McMoRan Exploration Co.

FCX has agreed to acquire MMR for per-share consideration consisting of $14.75 in cash and 1.15 units of a royalty trust, which will hold a 5 percent overriding royalty interest in future production from MMR’s existing ultra-deep exploration properties. The cash consideration of $14.75 per share represents a premium of 74 percent to the MMR closing price on December 4, 2012, and 31 percent to its one-month average price at that date. The cash portion of the transaction totals $2.1 billion, excluding payment for MMR interests currently held by FCX and PXP. The cash premium, excluding interests held by FCX and PXP, totals approximately $900 million.

The transaction is subject to the approval of the shareholders of MMR, including the approval of an amendment to MMR’s certificate of incorporation, receipt of regulatory approvals and customary closing conditions.

MANAGEMENT TEAM AND BOARD OF DIRECTORS

James R. Moffett, Chairman of FCX and Co-chairman and Chief Executive Officer of MMR, will continue as Chairman of FCX. B. M. “Mack” Rankin, Jr. will continue in his role as Vice Chairman. Richard C. Adkerson, President and Chief Executive Officer of FCX and Co-chairman of MMR, will continue as President and Chief Executive Officer and be appointed Vice Chairman. Upon completion of the transaction, James C. Flores, Chairman, President and Chief Executive Officer of PXP, will be Vice Chairman of FCX and Chief Executive Officer of FCX’s oil and gas operations. Kathleen L. Quirk will continue as Executive Vice President and Chief Financial Officer of FCX.

At closing, FCX will add to its board of directors James C. Flores and two other members from PXP’s board.

The corporate headquarters of the combined company will be located in Phoenix, Arizona, and the combined company will also maintain offices in Houston, Texas and New Orleans, Louisiana, to support its oil and gas operations and existing administrative functions.

FINANCING FOR TRANSACTIONS

FCX has received $9.5 billion in financing commitments from JPMorgan Chase Bank, N.A. to fund the cash portion of the merger consideration for both transactions and to repay debt outstanding under PXP’s existing term loans and revolver. FCX intends to provide a guarantee for all existing PXP bonds and PXP in turn will provide guarantees for all current and future FCX bonds and term loans. After giving effect to the transaction, estimated pro forma total debt at September 30, 2012, is approximately $20.0 billion, or approximately $16.3 billion net of cash.

COMBINED CASH FLOWS

For the year 2013, assuming prices of $3.50 per pound for copper, $1,500 per ounce for gold, $12 per pound for molybdenum, $100 per barrel for Brent crude and $4.50 per MMbtu for natural gas and current estimates of production, the combined company’s estimated EBITDA would approximate $12 billion and operating cash flows would approximate $9 billion.

FINANCIAL POLICY

FCX has an established financial policy of maintaining a strong financial position, investing in projects with attractive rates of return and returning excess capital to shareholders. Following the transaction, FCX intends to use cash flows to invest in development projects and to repay debt. FCX currently expects to continue its regular annual common dividend of $1.25 per share. FCX is committed to its long-standing tradition of maximizing value for shareholders.




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