Hmmm, our non-disclosure list may be getting smaller:
Phelps Dodge Raises Bid for Asarco, Cyprus Amax After 1st Offer Rejected
By Jonathan Make
Phelps Raises Cyprus Amax-Asarco Bid to $2.66 Bln (Update9)
(Updates with Phelps CEO comment in 7th paragraph.)
Phoenix, Aug. 20 (Bloomberg) -- Phelps Dodge Corp. raised
its offer for rival copper producers Cyprus Amax Minerals Co. and
Asarco Inc. to $2.66 billion in stock after the companies
rejected a lower bid and refused to enter negotiations.
Phelps, now the world's No. 4 producer, will become the
biggest if Cyprus and Asarco accept the premium of about 30
percent Phelps has offered. If they don't enter talks, Phelps
said, it will take ''all necessary steps'' to buy them. Cyprus
and Asarco, which agreed last month to a $2.2 billion merger that
would form the No. 2 producer, had no immediate comment.
Asarco, Cyprus Amax and Phelps Dodge are joining metal
producers of all kinds in the rush to create bigger companies so
they can reduce costs in the face of falling prices. In the next
10 years, analysts have said, the top 20 copper producers likely
will be folded into half as many companies.
''At this rate, we're going to have only a couple of
aluminum shares and a couple of copper shares in the U.S.,'' said
Nick Moore, the head of Flemings Global Mining Group. ''This is
another step along this globalization path. We've seen it in oil,
aluminum, we're now seeing it in copper.''
Phoenix-based Phelps also said it has made ''numerous
unsuccessful attempts'' to negotiate a transaction with Cyprus
and Asarco since they announced their combination on July 15.
''We are now prepared to take all necessary steps to make
this happen,'' Phelps Dodge Chairman and Chief Executive Douglas
Yearley said on a teleconference. ''Our proposal is a unique and
compelling opportunity, and superior to what they have in front
of them.''
Yearley also didn't rule out raising the bid again.
Prices Tumble
Copper prices hit a 12-year low of 60.80 cents a pound in
May, trimming profit and leading to widespread job cuts in the
industry.
New York-based Asarco, for example, said last month that it
would cut 150 jobs, or 2 percent of its workforce, while Phelps
Dodge said in June that it would fire 1,650 workers, or 12
percent of its employees. Aluminum prices hit a five-year low of
$1,159 a metric ton in March.
Phelps expects to generate annual cash savings of $200
million if the transaction occurs, with the savings to be phased
in fully by the end of the second year. The company also said the
transaction would add to earnings ''significantly'' in the second
year after the transaction closed, based in part on analyst
estimates that copper prices will rise to as much as 85 cents a
pound in 2001.
As part of any acquisition, Phelps Dodge may also sell some
assets such as its Phelps Dodge Industries, Yearley said on a
conference call. The company could also sell Cyprus's stake in
Kinross Gold Corp., he said.
Metal Mergers
Asarco rose 4 to 22 7/16, and Englewood, Colorado-based
Cyprus Amax rose 2 7/8 to 17 3/8. Phelps Dodge gained 9/16 to
59 1/8.
The Phelps offer comes after No. 1 aluminum producer Alcoa
Inc. agreed yesterday to buy rival Reynolds Metals Co. for $5.74
billion. That followed last week's agreement by No. 2 producer
Alcan Aluminium Ltd. to purchase Paris-based Pechiney SA and the
aluminum and packaging business of Zurich's Algroup for $9.2
billion.
Phelps Dodge initially offered to swap 0.3756 of its share
for each Asarco share, or $22 each, and 0.2874 share for each
Cyprus Amax share, or $16.83 each, according to the target
companies. The new offer is now 0.4098 share for each Asarco, or
$24.05 each, and 0.3135 share for each Cyprus, or $18.40.
The new Phelps Dodge's offer valued Cyprus Amax at about
$1.7 billion and Asarco at about $960 million. The companies
didn't immediately disclose if the proposed transaction involved
any assumed debt.
Premium?
The companies rejected Phelps Dodge's earlier bid because it
didn't offer enough of a premium, Cyprus Amax Chief Financial
Officer Gerald Malys said in an interview before Phelps disclosed
the higher bid. He declined to say if Cyprus Amax has received
other takeover offers.
''There's really not much of a premium in that kind of
(earlier) offer,'' Malys said. ''It wouldn't match the benefits
that we expect to come out of the merged companies.''
A link-up of the three would create a company that would
surpass Chile's state-owned Codelco as the world's top copper
producer, with forecast mine output this year of 1.65 million
metric tons, compared with Codelco's 1.58 million tons, according
to CRU International, a London-based commodity consulting
company.
Trailing in third place would be Broken Hill Proprietary
Co., with 822,000 tons of mine output, and Freeport McMoRan
Copper & Gold Inc. in fourth place, with 584,000 tons.
Profit Boost
Investors said a combination of Phelps, Asarco and Cyprus,
faced with declining copper prices, will be able to shut excess
copper production and boost profits.
''The only way that they're really going to be moving ahead
is to start consolidating,'' said Alford Zick, a money manager
for Chicago-based PPM America Inc., which owned 2.8 million
Phelps Dodge shares as of March 31. ''It's a combination that
makes a whole lot of sense.''
The boards of Cyprus Amax and Asarco met separately
yesterday to consider the initial takeover offer, and rejected it
as not being in the ''best interests'' of shareholders. Asarco
and Cyprus Amax said they will continue to pursue their merger
plan.
Under that agreement, the combined company would be called
Asarco Cyprus Inc. and will have about $8 billion in assets and
15,000 employees. The companies would produce about 2 billion
pounds of copper a year.
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