Phelps Dodge to acquire Asarco for 0.57 times revenue

Weekly Corporate Growth Report, Oct 18, 1999

The Deal: The Phelps Dodge Corp. has agreed to acquire Asarco Inc. for $1.11 billion. The acquisition ends a three-- way deal for Cyprus Amax Minerals Co. and Asarco that Phelps has been trying to complete for weeks. In July, 1999, Asarco and Cyprus had agreed to merge to cut costs, but Phelps Dodge interrupted their planned merger by offering hostile bids for both companies. Two weeks ago, Grupo Industrial Minera Mexico S.A. entered the battle with a bid for Asarco. Despite Phelps Dodge's offer for Asarco, Grupo Mexico has not withdrawn its offer for Asarco and is still evaluating its options. Phelps Dodge has already received U.S. antitrust approval for the acquisition.

Asarco shareholders will receive $14.75 a share in cash and 0.2513 Phelps share. The offer is higher than the $1.03 billion all-cash offer from Grupo Mexico. Phelps Dodge expects cost savings of $200 million from the three-way combination. On the news, Asarco rose $1.25, or 4.7%, to $28.00/share, while Phelps Dodge fell 56.25 cents, or 1.1%, to $53.00/share.

Discussion: Asarco is a leading miner, refiner, and smelter of nonferrous metals. It has mines in the U.S., Canada, and Peru, where it extracts copper, which generates 75.0% of its sales, and zinc. The company's other businesses include aggregates and specialty chemicals.

The three-way combination will be the world's leading copper producer and will have a solid portfolio of lower-cost global copper assets with enhanced flexibility to excel through business cycles.