Phelps Dodge Gets Bought

Tables are turned as the copper miner is purchased for $26 billion.
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Updated from 8:15 p.m. EST

Just a few months after its own mega-merger fell apart, copper giant

Phelps Dodge

(PD) - Get Report

has hoisted the white flag and agreed to be acquired in a deal valued at $26 billion.

Freeport-McMoRan

(FCX) - Get Report

late Sunday announced it was buying the Phoenix-based copper miner in a deal that represents a 33% premium to Phelps' Friday closing price of $95.02.

In the deal, New Orleans-based Freeport-McMoRan says it will pay $126.46 a share for Phelps. Freeport-McMoRan is a big gold, copper and silver mining and manufacturing firm. Each Phelps Dodge shareholder will receive $88 a share in cash plus 0.67 of a common share of Freeport-McMoRan shares.

The deal to acquire Phelps is a big reward to long-term shareholders of the copper giant who had opposed the company's earlier three-way $40 million merger with two Canadian nickel miners,

Inco

and

Falconbridge

. After that deal fell apart, many on Wall Street had predicted that Phelps would wind up being acquired.

In fact, one of Phelps' largest shareholders, the $12 billion hedge fund

Atticus Capital

, said in October it was actively trying to find a buyer for the copper miner. At last count, New York-based Atticus owned about 10% of Phelp's stock.

Earlier this year, Atticus had been pushing Phelps' management for a big share buyback as a way of boosting shareholder value. Phelps' management had resisted that call.

This year, Atticus, which manages six different funds, is up about 27%, say people familiar with the fund. The hedge fund has earned a reputation for taking outsized equity stakes in companies and agitating for buybacks or corporate mergers.

Together, the new company would become the largest North American mining company, according to a Freeport-McMoRan press release. Freeport-McMoRan is clearly betting that metal prices will remain strong. Metal prices traditionally are highly volatile and prone to periods of peaks and valleys.

"This transaction combines two leading mining companies to form a strong industry leader at a time when we see significant long-term opportunities in our industry,'' says Freeport-McMoRan's Chairman James Moffet. "FCX has been built through our exploration and development capabilities, and we will focus on aggressively pursuing opportunities in the extensive Phelps Dodge asset portfolio."

Freeport-McMoRan is being advised by

JPMorgan Chase

(JPM) - Get Report

and

Merrill Lynch

(MER)

.

Phelps Dodge is being advised by

Citigroup

(C) - Get Report

and

Morgan Stanley

(MS) - Get Report

, which had served as advisor to Inco in the failed deal with Phelps.

The proxy statement for that earlier failed merger reveals that Morgan Stanley's investment bankers had been the driving force behind the three-way combination.