World's Biggest Mining Takeover: Freeport-McMoRan To Buy Phelps Dodge

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Freeport-McMoRan Agrees to Buy Phelps Dodge for $25.9 Billion [Bloomberg]

Summary: In the world's biggest-ever mining takeover, Freeport-McMoRan Copper & Gold Inc. agreed to buy Phelps Dodge Corp. for $25.9 billion in cash and stock. PD shareholders will get cash and shares totalling $126.46 a share, a 33% premium on Friday's close. Freeport will become the world's biggest publicly traded copper producer, overtaking BHP Billiton Limited. Copper prices have almost tripled since 2002 on increased demand from China; the combined company plans to increase output by 25% over the next three years. Freeport shares trade at 8.4x earnings and the company has a market cap of $11.3b, while PD trades at 5.8x earnings with a cap of $18.2b. Phelps Dodge tried to takeover Canadian nickel miner Inco in September, but dropped its bid when shareholders approved a competing bid from Vale, the world's largest iron-ore producer. The combined company would have earnings of $7.9b and cash flows of $6.5b for 2006, and a debt of $17.6b. Freeport CEO Richard C. Adkerson said shareholders would benefit from "significant cash-flow accretion, lower cost of capital, and improved geographic and asset diversification." It remains to be seen whether anyone tries to take out PD, the most likely candidate being Grupo Mexico because of the close proximity of its holdings to PD's.
Related links: Media coverage: WSJ. Commentary: How To Play Phelps Dodge's Earnings Report • Atticus Hedge Fund Seeking Suitors for Phelps Dodge • Phelps Dodge Withdraws Bid for Inco, Opening Door for RIO • Jim Cramer's take on PD and FCX
Potentially impacted stocks and ETFs: Phelps Dodge Corp. (PD), Freeport-McMoRan Copper & Gold Inc.(FCX), BHP Billiton Limited (BHP), Inco Ltd. (N), Cabot Corp. (CBT), Southern Copper Corp. (PCU), Newmont Mining Corp. (NEM), Rio Tinto plc (RTP) • ETFs: SPDR Metals and Mining ETF (XME), Market Vectors Gold Miners ETF (GDX)

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