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Atticus Capital Buys More Phelps Dodge

Lauren Silva

Atticus Capital, the $12 billion hedge fund, continues building its Phelps Dodge(PD Quote - Cramer on PD - Stock Picks) war chest.

The New York-based hedge fund, in a regulatory filing Friday, says it added to its already considerable equity stake in the copper-mining company during the second quarter of the year. Atticus was buying shares of Phelps during a period that the Arizona-based company proposed an ambitious and ultimately unsuccessful three-way $40 billion merger with two Canadian nickel-mining companies.

Atticus, which has become something of a thorn in the side of Phelps' management, opposed the complicated merger and has urged the company to bolster its stock price by buying up shares. The hedge fund also has said it wouldn't be opposed to seeing Phelps get bought out.

In the filing, Atticus reported that its equity stake in Phelps, as of June 30, was 8%, or 16.3 million, up from 6%, or 12.3 million share, at the end of March. The hedge fund's stake in Phelps is worth about $1.3 billion, compared to $1 billion, in the prior reporting period. The stake includes only the shares owned by Atticus, not call options to buy shares of Phelps Dodge at a future price.

Phelps Dodge recently became the center of a merger triangle when the company bid for nickel miners Inco(N Quote - Cramer on N - Stock Picks) and Falconbridge(FAL Quote - Cramer on FAL - Stock Picks). In the proposed deal, Inco was to first buy Falconbridge and then Phelps would acquire Inco.

Atticus and a fund manager with Lehman Brothers'(LEH Quote - Cramer on LEH - Stock Picks) Neuberger Berman, another big institutional investor, both went on the record criticizing the deal, saying that it was too dilutive to Phelps Dodge's earnings. Privately, sources say other Phelps investors also opposed the deal.

The three-way merger affair recently dissipated, after Xstrata, a rival suitor for Falconbridge, beat out Inco with a higher bid. Phelps has since decided to focus only on acquiring Inco. But this week, another mining concern Teck Cominco(TCK Quote - Cramer on TCK - Stock Picks), offered a rival bid for Inco. Phelps is reportedly considering raising the cash portion of its bid for Inco.

But many shareholders remain opposed to Phelps doing any deal at this time, given that it had little debt and generates a high cash-flow.

Atticus did not comment on its filing and intentions with regard to Phelps. But many on Wall Street are wondering what Atticus will do next.

Atticus has always believed the copper company could best serve its shareholders by either buying back stock or putting itself up for sale. In fact, Atticus has been nagging Phelps Dodge since February to reconsider its capital structure and issue debt in order to buy back stock.

But Phelps Dodge has stubbornly defended its position in the most recent bidding war, despite Atticus' considerations over the past half of the year.

"Atticus has consistently recommended short-term strategies based on their own objectives," the company said in a statement in mid-July. "Our board of directors, which has carefully considered all of Atticus' suggestions, has concluded unanimously that our agreement with Inco is a superior path to creating shareholder value in both the long run and the short term."

Atticus is regarded as one of the most shrewd investment shops on Wall Street. Atticus, which manages six different funds, was up more than 20% last year, say knowledgeable people. Investors expect its returns to be at least that high again this year. The fund was started by Timothy Barakett, a former hockey player turned Wall Street baron, who happens to be one of the highest-paid traders on Wall Street. Last year, he ranked 19th on Trader Monthly's top 100 traders. His salary topped $100 million.

Meanwhile, Atticus continues its love affair with stock exchanges. The company increased its stake in the New York Stock Exchange(NYX Quote - Cramer on NYX - Stock Picks) to $773 million, or 11.3 million shares, up from 9.4 million shares that the company reported in May. In addition to the NYSE, Atticus has significant holdings in two more of the world's biggest exchanges: the Euronext and Deutsche Boerse. The three exchanges also have recently been tied up in a bidding war.