Freeport-McMoRan To Buy Phelps Dodge In $25.9 Billion Blockbuster Deal

While the astronomical increases in copper pricing have grabbed most of the headlines in the wire and cable market, a recently announced major acquisition by a copper producer could shake up the industry, too.

Freeport-McMoRan Copper & Gold Inc. agreed to buy competitor Phelps Dodge for $25.9 billion, in a deal that would create the world’s largest publicly traded copper company.

Under the current proposal, the combined company would retain the Freeport-McMoRan Copper & Gold Inc. name and trading symbol, but the Phelps Dodge name would continue to be used in its existing operations. Freeport is involved in copper, gold and silver mining in Indonesia and smelts and refines copper concentrates in Spain and Indonesia.

The boards of both Freeport-McMoRan and Phelps Dodge unanimously approved terms of the agreement. Shareholders also must approve the transaction, which company officials expect to close in first-quarter 2007.

What impact would this merger, if approved, have on the electrical industry? John Myers, former president and CEO of Houston Wire and Cable, Houston and now an industry consultant, said he would expect a merger of this magnitude to immediately impact short-term pricing and supply.

“I have always felt that along with the automotive and plumbing industry, the electrical industry was one of the largest users of copper,” he said. “Any merger of large suppliers such as Phelps-Dodge and Freeport-McMoRan will immediately affect the short-term pricing and supply. There could be some savings due to the merged companies’ efficiencies and combined output. If not, there will be long-term price increases.”

Copper producers will certainly pass on any increases that they have immediately to the end users and the electrical distributors, said Myers. Those increases will immediately be felt in the marketplace.

What ultimately happens will depend on the capacity the merged company decides to keep active, he said. There could also be some labor unrest if the workers at the mines decide they do not believe they are being treated fairly by the merger.

Jeffry Bleiman, president of Wm. B. Bleiman & Sons Inc., Philadelphia, was surprised to hear the news of the proposed acquisition and doesn’t know what the near-term effect will be. The forecast for demand in 2007 looks to be weaker than 2006 and this has caused some worries, he said.

“It’s undetermined as to the future strength of copper over the next few years, but I would expect that it should decline somewhat from its current level in 2006 and stabilize thereafter,” he said.

Bleiman added that it’s important to remember supply and demand have much to say about the level of pricing in the electrical industry. “It also appears that several of the current players in the wire and cable market continue to expand and in fact there are new players growing into the building wire market for 2007,” he said.