FCX, which saw its last quarterly earnings growth drop by almost 22%, moves from being a company with around $3.5 billion in total debt to now having (according to Yu) more than $16 billion. Yu reportedly said this gigantic increase in debt is manageable with some capital spending maneuvers.
The market reaction created an enormous amount of selling of FCX shares on over 10 times average daily volume. FCX's $1.25 annual dividend, which had represented a payout ratio of 37% of the company's earnings, is the first big question mark many investors will face.
Unless renegotiated, Freeport will pay around $50 a share in cash and stock for Plains, representing a takeover premium of nearly 39% based on the company's closing share price, according to a statement by the company made on Wednesday.Shareholders of McMoRan stock will get $14.75 in cash and 1.15 units of a royalty trust for each share. The terms of the transactions are supposed to close by the second quarter of 2013. The following chart gives you an overview of the three companies' share price history during the past year. FCX data by YCharts
Part of the shock was how abruptly this mega-transaction was announced, and that it was at a time when FCX, the world's largest publicly traded copper company, has seen its share price performance matched by competitors like Southern Copper (SCCO), which doesn't have the gold production and reserves that FCX has. The comparative chart below illustrates the price comparison now. FCX data by YCharts
Institutional shareholders including BlackRock (BLK), which held 3.1% of Freeport as of Sept. 30, have blasted the way Freeport announced the deal and tried to explain it in a conference call Wednesday. "Congratulations on making one of the worst teleconferences I've ever heard to justify a deal," was the comment reportedly made by the manager of BlackRock's $12 billion World Mining Fund, when he spoke with Freeport Chief Executive Officer Richard Adkerson on the company's conference call. "I haven't heard anything on this call that in any way justifies why these companies should be put together."
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV