Phelps boosts bid for Cyprus and Asarco

$2.66 billion in stock offered after 2 rivals rejected $100 million less


August 21, 1999|By BLOOMBERG NEWS

PHOENIX -- Phelps Dodge Corp., moving to create the world's No. 1 copper producer, yesterday raised its offer to buy Cyprus Amax Minerals Co. and Asarco Inc. to $2.66 billion in stock the day after the companies rejected a bid valued at $2.56 billion.

Cyprus Amax and Asarco agreed last month to their own $2.2 billion merger to form the No. 2 producer. Phelps said it is now willing to pay a 29 percent premium for Cyprus and a 30 percent premium for Asarco.

If the companies don't agree to negotiations, Phelps said, it is "determined to take all necessary steps" to acquire them. Cyprus and Asarco had no immediate comments.

Phelps Dodge, now No. 4 in the copper industry, is joining metal producers of all kinds in the rush to create bigger companies so they can reduce costs in the face of falling prices.

In the next 10 years, analysts have said, the top 20 copper producers likely will be folded into half as many companies.

"At this rate, we're going to have only a couple of aluminum shares and a couple of copper shares in the U.S.," said Nick Moore, the head of Flemings Global Mining Group.

"This is another step along this globalization path. We've seen it in oil, aluminum; we're now seeing it in copper."

Phelps also said it has made "numerous unsuccessful attempts" to negotiate a transaction with Cyprus Amax and Asarco since they announced their combination July 15.

"We are now prepared to take all necessary steps to make this happen," Phelps Dodge Chairman and Chief Executive Officer Douglas Yearley said in a teleconference.

"Our proposal is a unique and compelling opportunity, and superior to what they have in front of them."

Copper prices hit a 12-year low of 60.80 cents a pound in May, trimming profit and leading to widespread job cuts in the industry. Aluminum prices hit a five-year low of $1,159 a metric ton in March.

New York-based Asarco said last month that it would cut 150 jobs, or 2 percent of its work force, and Phoenix-based Phelps Dodge said in June that it would fire 1,650 workers, or 12 percent of its employees.

Phelps said it expects to generate annual cash savings of $200 million if the transaction occurs, with the savings to be phased in fully by the end of the second year. The company also said the transaction would add to earnings "significantly" in the second year after the transaction closed, based in part on analysts' estimates that copper prices will rise to as much as 85 cents a pound in 2001.

Asarco rose $4 to $22.4375 yesterday; Cyprus Amax gained $2.875 to $17.375; and Phelps Dodge added 56.25 cents to $59.125.

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