McMoRan Exploration

  • 05 Dec 2012 at 12:40 PM
  • M&A

Freeport-McMoRan Putting The McMoRan Back In Freeport-McMoran

Others have noted that Citi’s announcement of 11,000 layoffs today came with a larger than usual helping of corporate jargon, but this morning’s other big news release – copper producer Freeport-McMoRan’s double-barrelled acquisition of oil companies Plains Exploration and McMoRan Exploration – lacks one favorite piece of corporatese. Also it lacks layoffs. Where are the synergies here?

The combined company is expected to be a premier U.S.-based natural resource company with an industry leading global portfolio of mineral assets, significant oil and gas resources and a growing production profile. FCX’s mineral assets include [copper and stuff]. The addition of a high quality, U.S.-focused oil and gas resource base is expected to provide exposure to energy markets with positive fundamentals, strong margins and cash flows, exploration leverage and financially attractive long-term investment opportunities.

That’s just “we got some copper, now we got some oil, so you can have both.” A benefit of liquid equity markets is that a Freeport shareholder could just go invest his own money in oil companies, so it’s a little weird that Freeport is doing it for them. Why? There’s no really satisfying answer, leading to disjunctions like slide 7 of the investor presentation talking about how this lets FCX diversify and slide 8 talking about how closely correlated the two commodities – oil and copper – are.1 Is the message here “we are diversifying away from copper, to protect your investment from copper price risk,” or is it “we are buying more of a thing that’s the closest substitute we can find to copper, other than copper, to give you more of the copper exposure you crave”? Who knows?

As the FT puts it: Read more »