Billion merger between freeport mcmoran research

Mergers And Purchases, Mining, Share, Data Mining

Excerpt coming from Research Pitch:

Hence, a broad marketplace index is a good available comparability for the timeframe studies.

CAPM

The capital advantage pricing version is appropriate just for this particular function study. The event is a great acquisition by simply Freeport McMoran of an advantage, Phelps Avoid. Many mergers are made pertaining to operating synergetic effects, but in this case the approach was made several strategic causes. Phelps Wile knew Atticus was going to promote their risk and desired to make a pre-emptive hit against that. For Freeport, the move was made to more than dual their size. They travelled from becoming a medium-sized exploration firm to being a key world person. In the process, that they removed themselves from the location of being a takeover focus on (the BHP rumors under no circumstances amounted to anything). The merger was therefore carried out for long lasting reasons above all else. Thus, their effectiveness are unable to truly end up being measured right up until long-term returns have been noticed, preferably via an entire business cycle (mining being a cyclical industry).

The best proxy pertaining to the risk free of charge rate on the market is treasury securities. All of us will take a look at the rate of return in 1-year treasuries at the time of the purchase. In November 06\, the yield curve was inverted, and 2-year treasury notes were yielding 4. 718%. This is actually the risk free price used in the CAPM calculations. The beta was worked out to be 1 ) 068. The market return in the period was calculated to 7. 29%. Thus, the expected price of return on this investment is 5. 718 & 1 . 068 (7. up to 29 – 4. 178) sama dengan 8. 04%.

Abnormal Returns

The earnings were generally abnormal. The actual returns in Freeport McMoran stock had been considerably higher than the results on the market above the study period. There was significant week-over-week variance, showing that on a week-to-week basis there exists little if any relationship to the industry.

Analysis of Results

In the study period, Freeport McMoran’s stock increased 44. 28%, versus an expected enhance of almost 8. 04%. The stock needs to have finished the period at a bit above $62 per share. However , the acquisition seems to have increased the fortunes of Freeport stock considerably in the initial several months following the purchase announcement. The cyclical nature in the industry may explain a few of the movements because commodity prices increased significantly over the analyze period. Copper mineral prices rose 25% among November 06\ and June 2007. This kind of increase was less than the rise on Freeport’s stock, on the other hand.

The buy was made to get strategic reasons. One of the main final results is that Freeport emerged as one of the world’s most significant mining corporations. This more powerful position helped to catapult the stock higher in the months following the purchase. It had been unusual that Freeport share did not show up immediately following the offer, a consequence of buyout rumors. It was followed by the rise in copper mineral prices. Along with favorable buyer reaction to the purchase, Freeport dramatically outperformed historic anticipations in the weeks following the story of the Phelps Dodge takeover.

Works Offered:

Press Release: Freeport-McMoran Copper Gold to Acquire Phelps Dodge. Recovered April 7, 2009 via http://www.fcx.com/news/2006/111906.pdf

Traditional stock rates from Big Charts (WSJ). Retrieved April 7, 2009 from http://bigcharts.marketwatch.com/historical/default.asp?detect=1symbol=fcxclose_date=11%2F17%2F06x=43y=24

Trounson, Andrew. (2006). Rumour Rockets Oxiana. The Aussie. Retrieved April 7, 2009 from http://www.theaustralian.news.com.au/story/0,20867,20571418-643,00.html

Schneiderman, L. M. (2006). Atticus Capital Shopping Phelps Dodge. Forbes. Retrieved Apr 7, 2009 from http://www.forbes.com/2006/10/11/phelps-dodge-atticus-markets-equity-cx_rs_1011markets14.html

Mandaro, Laura. (2006). Copper mineral Merger Distort: BHP Billiton Tipped as Bidder. MarketWatch. Retrieved April 7, 2009 from http://www.marketwatch.com/news/story/copper-merger-muddied-freeport-surges/story.aspx?guid={B2622BE7-E3F4-4D84-A1C2-08899768CC13}

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