His latest move -- buying his former oil company, McMoRan Exploration Co., along with Plains Exploration & Production Co. for a combined $20 billion -- may be his most audacious yet.
The deals were billed as a way to create a premier U.S.-based natural resource company with an industry-leading global portfolio of mineral assets, significant oil and gas resources and growing production. On a Dec. 5 conference call with analysts and investors announcing the deal, Moffett, who serves as Freeport-McMoRan Copper & Gold Inc.'s chairman, said the deal would enable the company to expand on a larger, better-capitalized platform. And Freeport CEO Richard Adkerson insisted the deals wouldn't diminish the company's focus on its mining operations.
Still, the three-way deal was wildly unpopular. Investors who thought they owned a pure-play copper stock with some gold thrown in will now end up with oil and gas reserves at a time when prices for both aren't expected to go up any time soon. Some thought the move was a way to save McMoRan Exploration, which Freeport still partially owned after spinning it off in the mid-1990s but was having production problems at its four-year-long Davy Jones ultra-deepwater natural gas prospect in the Gulf of Mexico. And some thought the deal undervalued Plains, which could result in shareholder unrest and another company coming in with a higher offer.
"The company's presentation on the transaction released this morning contains no compelling rationale to explain the shift in focus," BMO Capital Markets Corp. analyst Tony Robson wrote in a note to clients.
The transactions are also fraught with conflicts of interest. The three companies have interlocking management and boards -- Moffett is chairman of Freeport but also CEO of McMoRan, Adkerson is CEO of Freeport but also co-chairman of McMoRan and McMoRan co-founder B.M. Rankin Jr. is vice chairman of McMoRan and Freeport. Freeport and McMoRan share six board members (who will receive $130 million in payouts for their shares, according to Securities and Exchange Commission filings), Plains and McMoRan share two directors and Freeport and Plains own 36% of McMoRan's shares. (Plains picked up its chunk in 2010 after trading McMoRan some of its shallow water Gulf of Mexico properties for cash and shares.)
There's not even a way for Freeport's shareholders to express their displeasure, as their approval is not required for the deal to go through. So they have voted with their shares: Freeport's stock is down 15% since the deal was announced, while McMoRan's is up 82% and Plains' is up 25%. Some think an activist investor may get involved to try to put a stop to the deals.
"I find it incredibly disappointing that as a management team you have chosen to break the trust with investors," Evy Hambro, joint chief investment officer of the natural resources team at BlackRock Inc., a large Freeport investor, said on the conference call announcing the deal. "So I think it would be only fair to your shareholders to give them a chance to vote."
But Moffett will undoubtedly fight back. The 74-year-old has discovered some of the most promising oil and gas and mining prospects in the world and made some very smart deals over his career, mostly coming out on top.
Moffett was born in Houma, La., in 1938 to an oilfield worker and his wife. But when he was five years old, his father left the family, his parents divorced, and he and his sister moved to Houston with his mother, who worked as a clerk at Montgomery Ward's. Moffett worked several jobs to help support his family, including bagging groceries, delivering newspapers, pumping gas and selling shoes, but also found time to be an active Boy Scout and earn the grades to become a member of the National Honor Society in high school.
Moffett attended the University of Texas at Austin on a football scholarship, playing tackle for the Longhorns under renowned coach Darrell Royal, who became his mentor. Moffett graduated in 1961 with an award for excellence in geology, which he then followed up with a master's in geology from Tulane. He worked in the oil and gas industry as a roustabout and consulting geologist in New Orleans before founding McMoRan Oil & Gas Co. in 1969 with partners William Kennon McWilliams Jr. and Rankin. ("Mo" in the company name was short for "Moffett.")
The company earned a reputation for going after oil and gas reserves aggressively but efficiently and formed drilling partnerships with several companies, including Freeport Minerals Co., and in 1981, Moffett engineered a combination of the two that became Freeport-McMoRan. At the time it was one of the largest corporate mergers in Wall Street history.
Moffett did well for himself over the years, with Forbes listing him among the country's 25 top-paid executives, earning nearly $25 million from 1986 through 1990.
In 2007, after the split-off with McMoRan, Freeport bought fellow copper producer Phelps Dodge Corp. for $27 billion, which at the time was the largest merger in the mining industry. While analysts thought Moffett got Phelps Dodge at a sweet price, seeing that it was undervalued at the time, the company incurred a lot of debt with the transaction. But it was able to pay it off when copper and gold prices took off and Freeport's price doubled in seven months. "No question this was a good move," Bill Selesky of Argus Research said at the time. "It was a home run from the beginning."
Moffett has had other successes. In 1988, Freeport discovered the Grasberg mineral district in the Papua province of Indonesia, which is now considered the world's largest copper and gold mine in terms of recoverable reserves. In 2008, McMoRan bought the ultra-deepwater Blackbeard prospect that Exxon Mobil Corp. walked away from after spending $200 million on drilling costs and, with better technology that could deal with high pressures, found natural gas reservoirs 300-feet thick.
Moffett also confounded the skeptics when McMoRan uncovered the Davy Jones prospect, which is considered one the most important natural gas discoveries in the Gulf of Mexico in decades -- an elephant, in oil and gas parlance. And McMoRan's $1 billion purchase of Newfield Exploration Co.'s shallow water oil and gas properties in 2007 are throwing off cash being used to explore Davy Jones and other prospects.
Lee Cooperman, chairman of Omega Advisors Inc. and a big investor in McMoRan, expressed concern in November that the company could run out of cash by the first quarter of next year, so he was obviously pleased with the McMoRan acquisition announcement. "It makes a lot of sense to me," he said on the conference call, noting a positive outlook for gold and copper prices and attractive prices for oil and gas prices.
Moffett hasn't always had the golden touch. In 1986, he had a run-in with bondholders during his $440 million takeover of bankrupt Denver-based Petro-Lewis Corp., one of the largest drillers in the U.S. at the time, and had to sweeten the deal to get them to agree to it. In 1997, his company agreed to partner with Bre-X Minerals Ltd. to develop a massive gold deposit at Busang, Indonesia on the island of Borneo, but it turned out not to have any gold in it. The $6 billion company collapsed and Bre-X geologist Michael de Guzman took his own life by jumping out of an airplane over an Indonesian jungle. More recently, the Grasberg mine has been wracked by violence and claims that it's severely affected the surrounding rain forest and polluted a nearby lake. And high costs and production delays at Davy Jones led a JPMorgan Chase & Co. analyst in November to say McMoRan's stock was worth zero, sending its shares down 23% over two days.
But despite all that, Moffett has proved to be unflappable, which may be the case with the Freeport-McMoRan-Plains tie-up as well. It could be because of the mantra that Coach Royal taught Moffett when he was on the football field: "Luck is when preparation meets opportunity." Or Moffett could find inspiration in one of his own sayings: "You need to find something that you think you can do better than anyone else, and then out-work everyone around you." He's got his work cut out making Freeport's purchase of McMoRan and Plains work.
Jenner & Block LLP hired middle market private equity lawyer Jason Osborn from Kirkland & Ellis LLP in Chicago. For other updates launch today's Movers & shakers slideshow.
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