Stocks: (PD)(RTP)(FCX)
There was a case to be made that Phelps Dodge was a super premium priced stock before Freeport-McMoRan agreed to buy it for almost $26 billion. That would tend to indicate that the merger is not a very good deal, at least not for Freeport holders.
Morningstar’s model of cooper prices forecasts that the value of the metal will drop enough to actually cause the revenue at Phelps Dodge to drop over the next few years.
But, the issues at Phelps Dodge are not simply in the distant future. Cooper prices have come down to a 19-week low. Bear Stearns actually downgraded the stock on fears that cooper will continue down. And, the company’s results have disappointed Wall St.
While mining company Rio Tinto has a PE of 10.17, Phelps’ stands at 13.15.
Owning the stock when it was at $95 had plenty of downside risk. The buyout is a great deal.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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