Phelps Dodge wins double-header in copper battle

With its proposed merger with Asarco (AR-N) foiled at every turn, Cyprus Amax Minerals (CYM-N) has accepted an amended takeover bid from copper giant Phelps Dodge (PD-N). A few days later, Asarco announced it too would accept an improved offer from the Phoenix-based copper producer.

The proposed “merger of equals” between Cyprus and Asarco began unravelling after an offer for a 3-way merger was received from Phelps Dodge. At first, the would-be partners rejected the Phelps Dodge bid, as well as an amended offer at higher prices. Then Mexico’s largest copper producer, Grupo Mexico, complicated matters further by unveiling an offer to acquire Asarco for US$26 per share.

Asarco continued to reject Phelps Dodge’s offer, as well as the more recent takeover bid by Grupo Mexico. However, after Cyprus decided to accept its US$1.8-billion deal with Phelps Dodge, Asarco had little choice but to follow suit. The improved offer values Asarco at US$1.1 billion, or US$28.21 per share, based on 40 million shares outstanding.

“We believe this transaction represents good value for Asarco shareholders,” says Chairman Francis McAllister. “We plan to work closely with Phelps Dodge to ensure a smooth transition.”

Phelps Dodge Chairman Douglas Yearley was equally enthusiastic. “We look forward to closing both transactions and beginning to realize the significant upside potential of combining Phelps Dodge, Asarco and Cyprus Amax.”

Once the transactions are completed, Phelps Dodge will overtake Corporacion Nacional Del Cobre de Chile (Codelco) to become the world’s largest copper producer. It expects to achieve annual cash cost savings of at least US$200 million from the 3-way combination, to be phased in by the end of 2001, through reductions in administrative and corporate expenses, operating improvements and efficiencies in exploration. The deal also allows the company to intergrate operations in the southwestern U.S. and elsewhere in the world.

The definitive merger agreement with Cyprus Amax allows Phelps Dodge to acquire Cyprus for US$7.61 in cash and 0.2203 share for each share of Cyprus on a fully pro-rated basis. The offer is slightly higher than Phelps Dodge’s previous offer of US$6.89 and 0.2203 share for each Cyprus share.

With the latest offer, Cyprus shareholders have the option of receiving all cash or all stock. The cash option amounts to US$20.54 per share, whereas the stock option amounts to 0.35 share of Phelps Dodge (though the prorated allocation should work out to be 63% stock and 37% cash). The stock portion of the deal will be tax-free to Cyprus shareholders.

In Chile, Cyprus owns a 51% interest in the mine known as El Abra (the largest solvent extraction-electrowinning operation in the world), while in southern Peru it owns the Cerro Verde mine.

Cyprus also brings to the table the Henderson underground molybdenum mine and the mothballed Climax mine, both of which are in Colorado. With these two mines and other byproduct production, Cyprus ranks as the world’s largest molybdenum producer.

On the exploration front, Cyprus is earning an 80% interest in the Kansanshi project from Zambia Consolidated Copper Mines, and 65% of the Freida River project in Papua New Guinea.

The copper producer hopes to secure shareholder approval for the Cyprus Amax deal at a special shareholders’ meeting in mid-October.

In its latest deal, Phelps Dodge plans to acquire Asarco for US$14.75 in cash and 0.2513 share per Asarco share on a fully pro-rated basis. This offer will expire Oct. 21; closing is expected a day later. Asarco shareholders will have the right to elect to receive cash or Phelps Dodge shares for each Asarco share. The stock portion will be tax-free to Asarco shareholders.

Phelps Dodge has already received anti-trust approval under the Hart-Scott-Rodino Act for its 3-way merger proposal. It expects to finance the US$690 million cash portion of the Cyprus Amax deal and the US$590 million cash portion of the Asarco deal through existing credit facilities and cash on hand.