--FCX shareholders say energy acquisition is unexpected, holds
few benefits
--They say acquisition of oil and gas companies fraught with
conflicts of interest
--FCX says deal will transform it into diversified natural
resources player
By Tatyana Shumsky
Investors say they were blindsided by Freeport McMoRan Copper
& Gold Inc.'s (FCX) decision to enter the energy market with
the purchase of two oil and natural gas companies.
The world's largest listed copper-mining company said Wednesday
it will pay about $6.9 billion in cash and stock for Plains
Exploration & Production Co. (PXP) and acquire the parts of
McMoRan Exploration Co. (MMR) not currently owned by Plains or
Freeport for $2.1 billion in cash. The deal also includes about $11
billion in assumed debt.
Shareholders made their objections known in the market. Freeport
shares ended down 16% at $32.16, its lowest closing since late
July.
"They've never really indicated that they had an interest in
diversifying into other metals, much less into oil and gas," said
Rick de los Reyes, portfolio manager at the T. Rowe Price Global
Metals and Mining Fund, which owns Freeport shares.
Freeport Chairman Jim Bob Moffett said the deal would expand the
mining company's scope.
"It takes us from a midsize player to a major player in both the
resource business and in the mining business," Mr. Moffett said on
a conference call.
The company's focus on copper mining had led many investors to
view Freeport's shares as a proxy for the base metal.
"We've known the company intimately for over 12 years and we're
not happy," said Shawn Reynolds, portfolio manager at Van Eck
Global Hard Assets Fund, another Freeport shareholder. "We
certainly didn't own Freeport because we thought it was going into
the oil and gas industry."
Mr. Reynolds pointed to "huge conflicts of interest" in the
deal.
Mr. Moffett is also chairman and chief executive of McMoRan
Exploration, and owns stakes in both companies. Plains is a major
shareholder in McMoRan Exploration.
Evy Hambro, joint chief investment officer of BlackRock Inc.'s
(BLK) Natural Resources Equity Team, whose fund is one of
Freeport's largest shareholders, lost no time in raising the
conflict of interest to Freeport's management.
"I presume that everybody on the call from your side is
conflicted because of the various different roles," Mr. Hambro told
Freeport Chief Executive Richard Adkerson on the conference
call.
Mr. Hambro said he thought shareholders should have voted on the
deal. "I find it incredibly disappointing that you have chosen to
break the trust of investors," he said.
Freeport said the structure of the deal allowed the company to
move ahead without a shareholder vote.
-Write to Tatyana Shumsky at tatyana.shumsky@dowjones.com
-0-