Freeport to buy mining firm Phelps Dodge

Freeport-McMoRan Copper & Gold Inc. said Sunday that it would acquire Phelps Dodge Corp. for $25.9 billion in cash and stock to create the world’s largest publicly traded copper company.

The world’s largest copper company in terms of production is Chile’s state-owned Codelco.

Richard C. Adkerson, president and chief executive of New Orleans-based Freeport, said the company had discussed combining with Phelps Dodge for years. But, he said, it was in recent weeks that he and J. Steven Whisler, Phelps Dodge’s CEO, had begun the groundwork for “serious negotiations” that yielded the agreement.

The deal is still subject to approval by shareholders and regulators. But Adkerson expects approval by the end of the first quarter of 2007.

Adkerson said acquiring Phoenix-based Phelps Dodge would provides Freeport an opportunity to diversify with an “attractive set of assets.”

“This gives us good, future growth opportunities,” Adkerson said. In spite of the acquisition price, he believes that the move would pay dividends for shareholders.

The combined companies would operate under the Freeport banner, although businesses operating as Phelps Dodge would continue to do so.

Adkerson, who would be CEO of the combination said he didn’t anticipate substantial reductions in the workforce.Although the companies say the combination would make it the world’s largest metals and mining company based in North America, Adkerson said it would hardly have a corner on the market.

“This is a competitive, global marketplace in which there is a number of significant producers,” he said. “We will be a large company, but not anything like one that will cause any concerns.”

The combined company’s headquarters will be in Phoenix, although Freeport will maintain an office in New Orleans for accounting and administrative functions for its operation of the Grasberg mine in Papua, Indonesia. The Papua mine is one of the world’s largest precious-metal mines.

Phelps Dodge has operations throughout the world, and is working on an $850-million expansion of its Cerro Verde mine in Peru.

It also is building a $550-million copper mine near Safford, Ariz., and planning a $650-million copper mine at Tenke Fungurume in the Democratic Republic of Congo.

Freeport valued its offer at $126.46 a share. That’s well above the $95.02 closing price for Phelps Dodge shares Friday.

Each Phelps Dodge share would be exchanged for $88 in cash plus 0.67 of a common share of Freeport.

The cash portion of the transaction deal totals $18 billion, and Freeport said it would issue 137 million shares to Phelps Dodge shareholders. That would give them about 38% of the combined company on a fully diluted basis. Freeport’s board would also be expanded to include three independent Phelps Dodge directors.

Freeport said JPMorgan and Merrill Lynch had committed to funding the cash portion of the transaction, which will boost its total debt by year-end to about $17.6 billion.

In October, Phelps Dodge reported a steep rise in third-quarter profit to $888 million, or $4.36 a share, from $366.1 million, or $1.81, in the year-earlier quarter.

Freeport more than doubled its third-quarter earnings. The company earned $350.7 million, or $1.67 a share, on revenue of $1.64 billion, compared with $165.8 million, or 86 cents, on revenue of $983.3 million a year earlier.