Freeport-McMoRan bought Phelps Dodge, a large copper producer in the past year, and now is selling off a portion of that business (called Phelps Dodge International Corporation) to General Cable for $735 million.
General Cable is estimating this will add $1.4 billion in revenue (at current metal prices), and most important accretive to earnings in year 1 by $0.20 to $0.30. With projected revenue of $4.3 billion pre-merger this is quite a large acquisition, increasing the size of the company by 1/3. Also it appears to provide some nice geographical diversification: "We are effectively merging one company principally concentrated in North America, Western Europe and Oceania with one focused in Latin America, sub-Saharan Africa and Southeast Asia," Gregory B. Kenny, General Cable president and chief executive, said in a statement."
On the downside an offer of $450 million in convertible debt is also on the table (gosh I hate that stuff)
In early trading, General Cable is up 3% on the news, whereas FCX is down a tad. Generally companies who do acquisitions are down on the announcement so the market must be looking favorably on this news, despite the issuance of the convertible notes.
The chart of General Cable is pretty horrid, so despite liking the longer term prospects I have been adding to this position slowly. BGC is about 1.7% of the fund and FCX 1.0%. Overall, on first glance this move looks good in terms of it being accretive to earnings and more importantly for the long run, quickly allowing General Cable into some of the faster growing economies in the world.
Long General Cable and Freeport-McMoRan Copper and Gold in fund, no personal positions.
2 comments:
This deal is a done deal yet, but it should go down pretty soon. Both stocks are up, especially General Cable. The fact that General Cable sold off $450 million of its own debt to finance the deal seems to indicate that they want it to go down pretty bad. Check out this site called News Visual http://www.newsvisual.com/newsvisual/2007/09/ties-should-all.html They mapped out the connections between some of the execs and General Cable and PDIC (who operate the wire and cable business at Freeport McMoRan, some pretty cool inside info and some pretty close ties too
I will check out that link - the more you invest the more you see how cozy the relationships are. Did you know that the billionaire who just invested in Bear Stearns is a close friend of the CEO? How convenient.
What do you think of the debt though? I hate convertibles. My biggest holding, Ciena is being held down by the $38.15 convertible ceiling - those hedgies love to short the common on these stocks with outstanding convertibles.
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