Arrowgrass Capital Partners LLP is opposing Freeport-McMoRan Copper & Gold Inc.’s takeover of Plains Exploration & Production Co. after amassing a stake in the energy company, according to a person with direct knowledge of the matter.
Arrowgrass, which owns about 4.6 million Plains shares, views the Freeport proposal as too low, said the person, who asked not to be named because the process is private. Investors are scheduled to vote on the takeover on May 20. Phoenix-based Freeport agreed in December to acquire Plains and McMoRan Exploration Co. for $9 billion in cash and stock.
At a recent event with several large Plains shareholders including Franklin Resources Inc., Arrowgrass and other holders expressed their opposition to the merger, the person said. 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 for Arrowgrass declined to comment. 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 and Scott Winters, spokesmen for Houston-based Plains, didn’t respond to phone messages and e-mails seeking comment.
Arrowgrass, based in London, 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 dated yesterday.
The mounting investor push-back is threatening the deal, said Mark Hanson, an analyst at Morningstar Inc. in Chicago. CR’s rejection of the deal is symbolically powerful because the firm is not 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 $25 in cash and 0.6531 share of Freeport for each Plains share, totaling 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. 19 years 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 1 percent to $31.43 yesterday in New York, bringing the value of its offer to $45.53 a Plains share, while Plains gained 1.2 percent to $46.07. 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 directors of McMoRan and Plains 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.