Plains and Freeport Offer Dividends as Takeover Sweetener
(Corrects share exchange rate in third paragraph and per-share value in sixth paragraph.)
Freeport-McMoRan Copper & Gold Inc. (FCX) sweetened its bid for Plains Exploration & Production Co. (PXP) to win shareholder support for the takeover, offering special cash dividends to raise the value of the deal to $6.6 billion.
Plains investors will get a one-time, $3-a-share dividend before the stock-and-cash transaction closes and Freeport will pay $1 a share after, the companies said today in separate statements. The payments are conditioned on completion of the deal and were announced hours before shareholder voting is scheduled to end on the transaction.
Rejection by shareholders would crimp Phoenix-based Freeport’s planned expansion into U.S. oil and natural gas, part of an effort to mitigate the largest publicly traded copper producer’s vulnerability to metal prices. Freeport on Dec. 5 announced it would buy Plains for 0.6531 share and $25 in cash, then equivalent to about $50 a share. The value of the bid has slumped as Freeport shares declined.
“It is likely that Freeport-McMoRan management has obtained reasonable assurances from large Plains shareholders that the revised offer would be agreeable,” Cowen Securities LLC analysts including Anthony Rizzuto and Nicholas Pope wrote today in a note to clients. The payouts add $525 million, “bringing the current deal economics in line with the original $50-a-share offer.”
Paulson & Co., the largest Plains shareholder with a 9.9 percent stake, will vote for the takeover, the hedge-fund manager said in a statement today. The deal diversifies cash flow and increases Freeport’s proportion of earnings from the U.S., Paulson said.
Plains investors stand to get about $3.65 in dividends a share, Tony Robson, a London-based analyst for BMO Capital Markets, wrote today in a note to clients. That would be added to the offer price of $46.34 a share based on the May 17 close.
Today’s shareholder meeting in Houston was recessed until 1 p.m. local time while votes are counted, Hance Myers, a Plains spokesman, said in an interview.
Shareholders Arrowgrass Capital Partners LLP and CR Intrinsic Investors, a unit of SAC Capital Advisors LP, had opposed the takeover, saying the price was too low. Jonathan Gasthalter, a Sard Verbinnen & Co. spokesman for CR Intrinsic, declined to comment on the vote today.
Arrowgrass, which holds about 4.6 million shares in Plains, is “pleased that the Freeport board has come closer to properly acknowledging the significant value Plains brings to the merged company,” Michael Edwards, a partner at London-based hedge fund, said in a written message today. He declined to comment on how Arrowgrass would vote.
Freeport Chief Executive Officer Richard Adkerson, who was in Indonesia in response to a mining accident that killed at least 17 workers, was in talks with Plains shareholders last week to salvage support for the acquisition, people with knowledge of the matter said.
Freeport will sell $1.5 billion of the combined company’s assets, reduce capital spending or both to fund the dividend. The company said it remains committed to a target of reducing debt to $12 billion in a three-year period.
Plains rose 7.3 percent to $48.86 at 12:34 p.m. in New York, the highest intraday price since September 2008. Freeport slipped 0.6 percent to $32.87.
The agreement to buy Plains was announced alongside Freeport’s acquisition of McMoRan Exploration Co. (MMR), a business it had spun off, for cash and a stake in future royalties. Plains is the largest shareholder of McMoRan Exploration, with 31 percent, according to data compiled by Bloomberg.
McMoRan shareholders will get $14.75 a share and units of a royalty trust that will hold a 5 percent stake in future production from shallow-water, geologically deep deposits the company is trying to develop. The cash portion represented a 74 percent premium to McMoRan’s closing price before the deal was announced.
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