Arrowgrass, which owns about 4.6 million Plains shares, views the Freeport proposal as too low, according to a letter the London-based firm sent to the Plains board, which was obtained by Bloomberg News. Investors are scheduled to vote on the takeover on May 20.
“We are confident that Plains shares would trade at or better than current levels in the absence of the Freeport proposal,” Michael Edwards, a partner at Arrowgrass, said in the letter dated today.
Phoenix-based Freeport agreed in December to acquire Plains and McMoRan Exploration Co. (MMR) for $9 billion in cash and stock. At a recent event with several large Plains shareholders including Franklin Resources Inc. (BEN), Arrowgrass and other holders expressed their opposition to the merger, according to a person familiar with the matter.
Franklin is the fourth-largest shareholder of Plains, according to data compiled by Bloomberg, with about 6.2 million shares, or a 4.8 percent stake, as of March. A representative of Franklin didn’t respond to a request for comment.
Eric Kinneberg, a spokesman for Freeport, declined to comment on Arrowgrass’s position or whether Freeport expects the deal to be approved by Plains shareholders. Hance Myers, a spokesman for Houston-based Plains, declined to comment.
Arrowgrass joins fellow Plains shareholder CR Intrinsic Investors LLC in rejecting the deal. CR Intrinsic said it owns 3.8 percent of the common stock including shares underlying call options, according to a letter to the Plains board.
The mounting investor push-back is threatening the deal, said Mark Hanson, an analyst at Morningstar Inc. (MORN) in Chicago. CR’s rejection of the deal is symbolically powerful because the firm isn’t a traditional activist, he said. Plains executives also own less than 5 percent of the company.
“I could see this certainly being a rallying cry” for other investors, he said. “You’ve got two weeks, which is forever in an investment horizon.”
If shareholders reject the deal, private equity could make a play for Plains, he said.
“It is a mature, cash-flowing asset,” he said. “Private equity has certainly taken out bigger firms than this.”
Freeport said Dec. 5 that it agreed to buy Plains for a mixture of cash and stock that amounted to about $50 a share at the time. The miner announced the same day it would acquire New Orleans-based McMoRan Exploration, a company that was spun off from Freeport-McMoRan Inc. almost two decades ago. It’s paying $14.75 a share in cash for that company, in addition to giving shareholders a stake in a royalty trust to benefit from future production.
The two takeovers will expand Freeport, which got almost 80 percent of its $18 billion of revenue last year from copper, into a global natural-resources giant with access to oil and gas deposits onshore and in the U.S. Gulf of Mexico.
Freeport rose 0.7 percent to $31.64 at 10:02 a.m. in New York, while Plains gained 2.2 percent to $47.07. The energy company has traded at a premium to the Freeport offer every day since March 15, according to data compiled by Bloomberg.
Investors sued both McMoRan and Plains in a series of lawsuits in Delaware Chancery Court in Wilmington alleging the directors violated their duties to get the best price for the companies. A preliminary injunction hearing to block the buyouts under their present terms was held May 1 in Wilmington before Judge John Noble.
Paulson & Co., the hedge-fund manager run by billionaire John Paulson, is Plains’s biggest holder, with about a 10 percent stake, data compiled by Bloomberg show. A spokesman for Paulson declined to comment.
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