Phelps Dodge Bids to Become World’s No. 1 Copper Firm
Phelps Dodge Corp., aiming to become the world’s top copper producer, Friday offered $2.66 billion in stock for Asarco Inc. and Cyprus Amax Minerals Co. after the two companies, which plan to merge, said earlier in the day they had rebuffed a slightly lower offer.
Asarco, based in New York, declined comment on the latest offer, saying it had not yet received the bid. Executives at Englewood, Colo.-based Cyprus were not available for comment.
The two smaller copper producers said they would move forward with their own merger, which is valued at $1.42 billion, based on current stock prices.
Doug Yearley, chief executive of Phoenix-based Phelps Dodge, said he would have preferred a negotiated settlement, but vowed to do “everything we can to get this transaction done.”
That could even mean the “ultimate end game of putting up a slate of alternate directors,” Yearley said on a conference call.
The combination of No. 4 Phelps Dodge with Asarco and Cyprus, currently the world’s sixth- and seventh-largest copper producers, would outstrip Chile’s state-owned Codelco for the position of top copper producer.
The Phelps Dodge plan is the latest in a wave of consolidation sweeping through commodity industries. It comes just one day after Reynolds Metals Co. gave in to an unsolicited $4.4-billion stock offer from Alcoa Inc., the world’s top aluminum producer.
Yearley said the deal would generate an extra $100 million in cash flow in the first year and would add significantly to earnings in the second year.
By its second year, Phelps Dodge estimated, a three-way merger would generate annual savings of $200 million, including $85 million from real estate, $60 million in supply costs, $12 million in power savings, $7 million in refining costs and $6 million from the integration of Arizona mining operations.
Phelps Dodge said it offered 0.4098 share of its own stock for each Asarco share and 0.3135 share for each Cyprus share.
Phelps Dodge said its offer valued Asarco at $24.05 a share, or a total of about $960 million, a 30% premium for Asarco shareholders, based on the share prices of Phelps and Asarco before they were halted Friday morning.
Cyprus Amax is valued at $18.40 a share, or a total of about $1.7 billion, a 29% premium for Cyprus shareholders, Phelps Dodge said.
In New York Stock Exchange trading, Asarco stock jumped $4 to close at $22.44, Cyprus Amax gained $2.88 to $17.38 and Phelps Dodge rose 56 cents to $59.13.
Asarco and Cyprus, which have set shareholder meetings for Sept. 30 to approve their planned merger, said they have identified annual expense reductions approaching $200 million, although Yearley at Phelps Dodge questioned those assumptions.
Annual worldwide copper production of a combined Phelps-Asarco-Cyprus would be about 3.8 billion pounds, with attributable copper reserves of about 80 billion pounds, predominantly in the United States, Chile and Peru.
