By Michael Erman
NEW YORK May 20 Freeport-McMoRan Copper & Gold Inc took a big step on Monday in its plan to expand into energy, when Plains Exploration & Production Co shareholders approved the miner's $6 billion takeover deal, sweetened by two special dividends.
The world's largest listed copper producer's bid to buy Plains, unveiled in December, ran into strong headwinds in recent weeks when prominent investors and proxy advisory firms said Freeport's offer was too low.
But the companies shored up support by announcing the dividends on Monday morning, hours before shareholders were set to vote. The payouts will provide Plains shareholders with about $470 million in cash and stock on top of the $6 billion deal already on the table.
The dividends effectively increase the amount Plains shareholders would receive by $3.65 in cash and stock, bringing their haul in line with Freeport's original $50-a-share bid. A decline in Freeport shares since December lowered the payoff and fanned opposition.
Last month, copper hit its lowest in a year and a half on weak data from China, the world's top consumer, and gold prices have fallen, while oil and gas prices have increased. That may have helped vindicate Freeport's strategy.
"The economics are much more favorable for Freeport then when it was announced," said BB&T Capital Markets analyst Garrett Nelson. "They are essentially paying the same price as when they announced the deal, but it looks to be a modestly accretive transaction for Freeport, versus what appeared to be a modestly dilutive one."
Plains shares rose more than 7 percent after the dividends were announced.
CONCERN OVER FOCUS
Freeport shocked the market late last year when it said it would buy Plains, along with McMoRan Exploration Co as a way to diversify as copper's prospects wane.
The deals initially drew the ire of some of Freeport's own investors and analysts, who said that they would have preferred the company focus its investments on mining.
Freeport plans to boost its copper sales in the next few years by expanding existing mines, but it has said there are few good copper assets on the market. In the broader industry, mines are ageing, grades are declining and costs are on the rise.
Freeport's cash bid for McMoRan Exploration is not conditional on the closing of the Plains deal. McMoRan's shareholders are scheduled to vote on that deal on June 3.
Plains said in a statement on Monday that it would pay stockholders a special one-time cash dividend of $3 per share immediately before the Freeport deal closed.
Freeport said it would declare a $1-a-share stock dividend immediately after the deal closed. It would pay the dividend to both Freeport's current shareholders and Plains investors who receive shares in the mining company through the transaction.
"The initial deal was $50 a share as the headline. This gets them close to that," said King She, a special situations analyst for Susquehanna Financial Group.
After the dividends were announced, Paulson & Co - Plains' largest shareholder with nearly 10 percent of the oil and gas company's shares - said it would vote in favor of the deal. It was the first time that Paulson indicated its voting intention.
Freeport said that it plans to sell $1.5 billion of assets from the combined company or cut capital spending.
BB&T's Nelson said the asset sales would fund the dividends: more than $1 billion for the Freeport dividend and about $390 million for the Plains payout.
Plains shares rose 7.4 percent to close at $48.94 on the New York Stock Exchange on Monday. Freeport shares were down 6 cents to $32.88.