North Is Proving Frosty for Phelps Dodge

Phelps Dodge(PD Quote - Cramer on PD - Stock Picks) is running into stiff opposition in its efforts to sell an ambitious northward expansion to Wall Street this week.

The copper giant's management got a rude reception Tuesday in New York during a meeting with a group of top institutional investors to pitch the planned three-way acquisition of Inco(N Quote - Cramer on N - Stock Picks) and Falconbridge(FAL Quote - Cramer on FAL - Stock Picks). The combined stock-and-cash deal, valued at $40 billion, would add a whopping $17 billion of debt to Phelps Dodge's balance sheet.

People who attended the meeting say a top portfolio manager with Lehman Brothers'(LEH Quote - Cramer on LEH - Stock Picks) Neuberger Berman asset management group loudly denounced the three-way merger, calling it a bad move for Phelps Dodge shareholders. S. Basu Mullick, the manager of Neuberger's $2.1 billion Partners Fund, argued the deal would add too much debt to Phelps Dodge's balance sheet and be dilutive to future earnings, attendees told TheStreet.com.

Mullick, whose Neuberger fund owned 2.3 million shares of Phelps Dodge as of March 31, declined to comment. Neuberger is Phelps Dodge's 15th largest shareholder, and its opposition to the deal could sway other institutional investors to vote against the transaction, which is scheduled to close in September.

Several hedge fund managers who also were at the meeting at the Park Avenue Café in Manhattan say they came away believing the complicated deal may be in trouble.

Others were less concerned. One hedge fund manager who is inclined to support the deal says Mullick's opposition needs to be weighed against the fact that a variety of Neuberger funds have sold some 3.6 million shares of Phelps Dodge over the past several months.

Shares of Phelps Dodge, most recently trading at $80.53, are down nearly 3% since before the deal was announced Monday morning.

Phoenix-based Phelps Dodge is in the midst of a cross-country road show to sell the complex transaction, which has the copper-producing firm simultaneously acquiring two Toronto-based companies that both are fending off hostile takeover bids of their own. The merger would create one of the world's biggest producers of nickel and copper ore.

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