Case Detail

Case Summary

Freeport-McMoRan: Financing an Acquisition

Case Number: 5-407-751, Year Published: 2007, Revision Date: February 11, 2009

HBS Number: KEL345

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Authors: David Stowell; Peter Rossmann

Key Concepts

M&A, Mergers and Acquisitions, Capital Markets, Convertible Sales, Convertible Structuring

Abstract

Freeport-McMoRan’s acquisition of Phelps Dodge created the world’s largest publicly traded copper company. JPMorgan and Merrill Lynch advised the acquirer and arranged $17.5 billion in debt financing and $1.5 billion in credit facilities. In addition, these two firms underwrote $5 billion in equity capital through simultaneous offerings of Freeport-McMoRan common shares and mandatory convertible preferred shares. These financings created an optimal capital structure for the company that resulted in stronger credit ratings. The activities of the equity capital markets and sales groups at the underwriting firms are explored and the structure and benefits of mandatory convertible preferred shares is explained.

Learning Objectives

The learning objective of the case is to understand the role of investment banks in advising a large corporation regarding an acquisition and related financings in the capital markets. As part of this, the activities of an investment banking firm’s equity capital markets group and their underwriting risks are analyzed. Finally, the structure of a mandatory convertible security is reviewed in terms of benefits to both issuers and investors.

Number of Pages: 19

Extended Case Information

Teaching Areas: Finance

Teaching Note Available: Yes

Geographic: Global

Industry: Mining

Organization Name: Freeport-McMoRan

Organization Size: Large

Year of Case: 2006