This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Freeport's Deals Fail the Smell Test: Jim Cramer

Editor's Note: This article was originally published on Real Money on Dec. 5. To see Jim Cramer's latest commentary as it's published, sign up for a free trial of Real Money.

We got not one but two astounding deals today in the oil patch -- astoundingly bad deals, I should add.

Freeport-McMoRan Copper & Gold's (FCX) huge bid for McMoRan Exploration (MMR), a related company, and Plains Exploration & Production (PXP) smacks of gigantic overpays for certain Gulf of Mexico assets -- something that the market's verifying today with a tremendous hammering of FCX stock.

Let's go over just how outrageous these deals are.

First, James "Jim Bob" Moffett, the chairman, president and CEO of McMoRan Exploration, is also chairman of Freeport-McMoRan. He's using Freeport money and stock to buy MMR, a wildcatting company that's drilling a gigantic well, the Davy Jones, in the Gulf of Mexico that's been disastrous so far for the company. MMR's been crushed by this 29,000 foot deep well in the Gulf of Mexico, which has had repeated delays and may turn out to be a total bust. If you owned MMR, you just got $14.75 in cash and 1.1 units of a Royalty Trust, giving you an almost $7 move on what had become a free-falling stock of late courtesy the missteps in the Davy Jones project.

The other portion, the buy of Plains Exploration, which has given you more than nine points of gains on a $36 stock, seems better because PXP recently bagged some good Gulf of Mexico properties from BP (BP). Still, Plains owns 31.5% of McMoRan and Plains' CEO, Jim Flores, is on the board of McMoRan.

These hardly seem like arm's-lengths deals, and while I have been recommending PXP because it picked off a prime property from a hobbled BP, I would never have thought that it was a hot idea to buy MMR, which recently plummeted by about 33% from $12 on a negative progress report from the Davy Jones well.

Just doesn't seem right to me -- it doesn't pass the smell test.

I like deals where the acquirer goes up, not down, and the positive acquirer action had been the hallmark of this era. The $50 a share in cash and stock Freeport's paying for Plains, a 39% premium to yesterday's price, is causing arbitrage pressure on FCX.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free


Chart of I:DJI
DOW 17,601.85 -58.86 -0.33%
S&P 500 2,041.39 -9.24 -0.45%
NASDAQ 4,687.7910 -29.3030 -0.62%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs