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New Mega-Merger a Three Bagger

In mergers, two's a deal. But lately, three's been the number of choice.

Amid a flurry of recent merger activity, two commodities firms outdid themselves. Anadarko (APC), a petroleum firm, and Phelps Dodge (PD), the world's largest copper miner, both announced 11-figure transactions over the last five days to acquire not one, but two rivals.

The two-at-a-time asset grabs show how antsy companies are in the metals and energy sectors to nail down partners using stock that often has run up with the underlying commodity. Some specialists, meanwhile, wonder if their ambitious acquisitions might be prove too challenging.

"It is unusual to see a company announce two deals" at one time, said Octavio Marenzi, CEO of the consulting firm Celent. Aligning three companies is certainly more distracting than two, and synergies can be difficult to obtain, Marenzi says. Still, although these large transactions can be risky, "people are rushed to close a deal."

On Friday, Anadarko said that it would acquire Kerr-McGee (KMG) and Western Gas Resources (WGR) in two separate transactions that total $23.3 billion. On Monday, Phelps Dodge said that it would merge with Inco (N) and Falconbridge (NYSE), two Toronto-based nickel-mining firms, in a combined transaction valued at about $40 billion.

Market conditions have created a sense of urgency for acquisitions in the commodities sector. As commodities prices surged over the past year, so did the stock market value of commodity businesses. Shares in Phelps Dodge, for example, have almost doubled in the past year.

"The deals are heavily driven by fundamental turbulence in natural resources," says Robert Bruner, dean of the University of Virginia's Darden School of Business. "There has been a sharp increase in demand ... for raw and refined metal products," pushing up commodities prices and, in turn, the companies' shares.

Add to that a dose of corporate peer pressure, and the urge to merge becomes overwhelming.

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