Deutsche Bank ups Freeport-McMoRan to 'Buy'
NEW YORK (AP) — A Deutsche Bank analyst on Thursday raised his rating for Freeport-McMoRan Copper & Gold Inc. back to "Buy," saying that the uproar over the company's plans to buy a pair of oil and gas producers for a total of $9 billion will eventually blow over.
THE BACKGROUND: Phoenix-based Freeport-McMoRan said earlier this month that it will buy Plains Exploration & Production Co. for $6.9 billion and McMoRan Exploration Co. for about $2.1 billion. The miner also will assume $11 billion in debt in the deal.
It is expected to create a natural resources conglomerate with assets ranging from oil rigs in the Gulf of Mexico to a huge copper mine in Indonesia.
Houston-based Plains Exploration produces oil in California, Texas and the Gulf of Mexico, along with natural gas in Louisiana. McMoRan Exploration, based in New Orleans, is developing natural gas resources that lie deep below shallow waters of the Gulf of Mexico.
There has been some shareholder backlash over the deal's high costs and uncertain benefits. Freeport-McMoRan shares tumbled 21 percent in the days following the announcement, but have since rebounded, rising about 10 percent from recent lows.
THE OPINION: Analyst Jorge Beristain said that while the news came as a shock to investors — especially given the high level of debt, unclear industry incentives and pricey premiums involved — they will eventually get past it and the deal will go through.
Beristain said his downgrade of the company's shares to "Hold" shortly after the news broke was largely based on the same concerns. He said Thursday that he now has a better understanding of how the acquisitions will work and thinks that investors will eventually gain from the moves. Meanwhile the stock has been "more than penalized," he said.
The analyst raised his rating for Freeport-McMoRan back to "Buy," but kept his price target at $40.
THE SHARES: Down 32 cents to $33.63 in afternoon trading.