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.
Copyright (c) 2012 Dow Jones & Company, Inc.
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