Freeport-McMoRan Copper & Gold Inc (FCX), McMoRan Exploration Co (MMR): Payoffs and Headaches With the New Deals

Complications and Other Issues

Whereas the Plains deal is all but assured to clear the remaining regulatory and shareholder-related hurdles that it faces, the Exploration deal is still up in the air. At issue are allegations of “insider dealing” as well as insinuations that Freeport moved quickly to take full control of its subsidiary after the surfacing of negative reports about one of the smaller company’s deep-water wells.

While the extent of Exploration’s drilling problems remain unclear, a consensus is emerging that Freeport’s bid for Exploration dramatically undervalues the company. At the same time, it is important to note that Freeport’s management team may well have an inside view of the extent of the problems at Exploration. If the drilling issue is worse than previously reported, Freeport’s offer may be closer to Exploration’s true value.

Takeaways

In sum, both of these deals have the potential to enrich shareholders of the bought-out companies. Investors who seek a way to play Freeport’s buying spree would do well to buy into Plains at these levels and accept the small premium that may still be available to them. Alternatively, risk-conscious investors could purchase Freeport-McMoRan Copper & Gold Inc (NYSE:FCX) at these levels in the hopes that the Exploration deal will fall through completely. If this occurs, it is likely that Freeport’s stock will shoot back up to its pre-merger levels.

The article Payoffs and Headaches With the New Deals originally appeared on Fool.com and is written by Mike Thiessen.

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