Phelps Dodge Rebounds

For a company on the giving end of a $40 billion acquisition, shares of Phelps Dodge(PD Quote) are acting wacky.

Last week, the copper mining giant announced a three-way merger with Canadian nickel miners Inco(N Quote) and Falconbridge(FAL Quote). In the ambitious transaction, Phelps Dodge will be the acquirer, with Inco first swallowing Falconbridge and Phelps then gobbling up Inco using a mix of cash and stock.

As often happens in dilutive mergers, shares of the acquirer dropped on the news, falling 9.5% in the three days following the June 26 announcement to $75.05. Most observers believed the hefty 22% premium for the purchase of Inco was the reason for the price drop. ...