C = Catalyst for a Stock’s Movement
One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. Mergers and acquisitions have the potential to move a stock dramatically higher, but it can also drill shares painfully lower.
Freeport announced on Wednesday that it agreed to purchase Plains Exploration & Production (NYSE:PXP) for approximately $6.9 billion in cash and stock, while also buying McMoRan Exploration (NYSE:MMR) for about $3.4 billion in cash, or $2.1 billion net of 36 percent of McMoRan assets currently owned by Freeport and Plains. The acquisitions include about $11 billion in assumed debt, and McMoRan Exploration shareholders will receive a distribution of units in a royalty trust that will hold a 5 percent overriding royalty interest on future production in the company’s existing shallow water ultra-deep properties.
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The deal gives Freeport stronger exposure to the oil and gas business, which it got into during the 1970s, but sold many of its assets in the 1990s to develop copper and gold projects.
James R. Moffett, chairman of the board for Freeport, explains in a press release, “FCX has been built through our exploration and development capabilities, and this transaction will enable us to add assets with exceptional exploration and development potential to a world-class mining company to create a premier minerals and oil and gas business focused on value creation for shareholders. The transaction offers significant values to the MMR and PXP shareholders and will enable FCX to build on these values through a much larger, well capitalized platform.”
Investors did not feel the same way…