Shares of Freeport-McMoRan (FCX), one of the world’s biggest gold producers, are tanking in early trading after the company announced this morning that it would acquire McMoRan Exploration Co. (MMR) and Plains Exploration & Production Company (PXP).The stock is down almost 15 per cent.
MMR and PXP, on the other hand, are up 75 per cent and 23 per cent, respectively.
The deals are valued at $6.9 billion for PXP ($14.75 per share in cash and royalty trusts) and $2.1 billion for MMR (about $50 per share in cash and stock), making it a $9 billion acquisition in total.
McMoRan Exploration used to be a part of Freeport-McMoRan, but was spun off into a separate publicly-traded company. Now, Freeport-McMoRan is buying it back.
Plains Exploration also owns 31.5 per cent of McMoRan Exploration shares, so Freeport’s combined purchase of the two companies will bring everything under the same umbrella again.
Here is the reasoning behind the acquisition as stated in Freeport’s press release:
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 per cent of the combined company’s estimated EBITDA (equals operating income plus depreciation, depletion, and amortization) is expected to be generated from mining and 26 per cent from oil and gas, with 48 per cent 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.
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