Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)’s stock value dropped further after analysts and investors questioned the deal to expand its energy business by acquiring two oil and gas companies for $9 billion.
The stock price of the Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) declined by almost 5 percent to $30.74 per share during the afternoon trading at the New York Exchange. Yesterday, the stock fell by 16 percent after the company announced its agreement to purchase Plains Exploration & Production Company (NYSE:PXP) and McMoRan Exploration Co (NYSE:MMR).
Analysts and investors criticized Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), and they described the transaction as expensive, unnecessary, and a distraction to the company’s copper business.
During the conference call on Wednesday, Evy Hambro, managing director of BlackRock, Inc. (NYSE:BLK) said, “I haven’t heard anything on this call that in any way justify why these companies should be put together. I find it incredibly disappointing, that as a management team, you’ve chosen to break the trust with investors from the business that we chose to invest in.”
In response to Hambro’s concern, Freeport chairman James R. Moffett emphasized the company’s history and performance record in oil and gas business. He also encouraged the investors to trust the company.
Moffet said, “It worked pretty well when we combined the oil and gas back in 1981. I hope you are not going to be jumping into conclusions really quick without looking at the history, while we’ve been successful in the past.”
He also touted that Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) has the best mining business in the world. The company is one of the largest mining companies in the United States, with business operations in Indonesia, and the Democratic Republic of Congo.
Moffet thinks Freeport will have the best oil and gas assets as the company acquires positions in oil and gas shale formations in Texas and Louisiana, as well as oil production facilities in the Gulf of Mexico. Freeport expects to generate 26 percent of its earnings from its energy business and 74 percent from mining operations.
Analysts from Deutsche Bank Markets research downgraded their rating for Freeport stock from buy to hold and lowered the price target to $40 per share. According to the analysts, they do not support the transaction, citing shareholders opinion that they rather want the company to maintain its exposure in mining.
On the other hand, Citigroup Inc. (NYSE:C) analysts also downgraded their stock rating for the company from buy to neutral and lowered their price target from $46 to $35 per share, citing that the deal provides 3.2 percent dilution to the 2013 EPS, but 0.8 percent accretion to 2014.
Meanwhile, BMO Capital Markets analysts believed that Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)’s diversification in the oil and gas business provides negative impact to the company by removing a key investment draw in its copper exposure. The analysts also criticized the lack of opportunity for shareholders to vote on the transaction, considering that it represents two-thirds of Freeport’s market cap, especially given management's financial interest in one of the targets.
. The analysts downgraded the stock to market perform.