Print | Share | Reprint

Trading indicates resistance to Plains sale

by Scott Stuart | Published May 14, 2013 at 9:30 AM

Plains Exploration & Production Co. made its pitch to shareholders Monday to support the oil company's sale to copper mining company Freeport-McMoRan Copper & Gold Inc.

The merger will go to a Plains shareholder vote May 20 and has been trading as if shareholders of the Houston-based oil and gas exploration company might vote the transaction down. Freeport shareholders do not have a vote on the deal, which was received with skepticism as it diversifies Freeport away from its copper mining core, a move institutional investors think they could accomplish by diversifying portfolios without the company management risks of mixing operational assets.

The deal was designed to provide Plains shareholders $50 per share in cash and stock, which is now worth about $45.80. Proxy advisors Glass, Lewis & Co. LLC and Institutional Shareholder Services Inc. have recommended Plains shareholders oppose the deal.

Shareholders CR Intrinsic Investors LLC, with 3.8%, and Arrowgrass Capital Partners LLP, with 4.6%, have stated they intended to vote against the merger.

Plains shares traded Monday for $44.80 at a spread of $1, or 2.2%, to their deal value. The market is betting that the deal might be voted down and Plains shares will fall in the short term. Freeport has said its offer is best and final. If the merger gets shareholder approval, the spread of roughly $1 represents an annualized return of 50% assuming a June 1 deal close.

How Plains shareholder Paulson & Co., with nearly 10% of the shares, weighs in could be a significant factor in the outcome. Paulson has not filed its intentions in the form of a 13D with the Securities and Exchange Commission.

With the market predicting Plains shares decline in the short term if the deal is voted down and Freeport stating it won't bump, the merger has become a true game of chicken.

Plains chairman and CEO James Flores addressed shareholders by letter Monday to gain support from the transaction. Flores argued in support of the diversification of product and geography that the deal offers, as well as a lower cost of capital. Flores said that proxy advisers were basing their analysis on hearsay rather than the opinion of investment banks and months of analysis by independent financial, engineering and geoscience experts.

The deal does have a 10-day pricing period ending five days before the merger close and is subject to a cash or stock election with caps on both the amount of shares and cash issued to complete the deal. Since the cash election is likely to be worth more that the stock election, arbs could get a slightly better payout if the cash option is underelected.

Share:

Energy

Trading indicates resistance to Plains sale

Free preview

Meet the journalists

Scott Stuart

Senior Writer: Arbitrage

Movers & Shakers

Video

Coming back for more

Sectors