SESSION 9 PRE-WORK
1000 words max in total, although some questions may require more than 100 words (question 5).
P.C: “Freeport-McMoRan: financing an acquisition”
1/What is a poison pill? What is a white knight?
A poison pill is a shareholders’ right plan approved by the Board of Directors of a corporation to discourage hostile takeovers. There are two types of poison pills:
a) Flip in: shareholders have the right to buy more shares at a discount, if a bidder buys a certain percentage of the company's shares. This action dilutes the shares of the bidder and makes the takeover more expensive.
b) Flip over: allow shareholders to buy the acquirer's shares at a discounted price after the merger.
Poison pills are controversial because they force the bidder to negotiate with the Board instead of negotiating ...view middle of the document...
3/What are the benefits of the announced merger agreement and terms for FCX and Phelps Dodge shareholders?
For FCX shareholders, the benefits were
- Significant Cash Flow increase
- Lower Cost of Capital
- Improved geographical and asset diversification
For Phelps Dodge shareholders, the benefits were
- The 33% premium to close of the 17th Nov 2006.
- The departure of its CEO (pointed out by Bear Stearns Equity Research team).
As per the terms, each Phelps shareholder would receive $88.00 per share in cash plus 0.67 common shares of FCX. The cash portion represented 70% of the total. The equity portion resulted in Phelps shareholders owning approximately 38% of the combined company.
4/ Explain the structure of the deal (FCX/Phelps Dodge merger) and how it is financed
5/ Summarize the role of the various teams in JPMorgan and Merril Lynch: Coverage, M&A, capital markets (ECM and DCM), leveraged finance teams, institutional sales, equity research analyst etc... at the various stages, and specify when they are working “inside” or “outside” the wall. A Table format might be well-suited.
6/ why is there a large capital risk for ML and JPMorgan in spite of the possibility to syndicate? Why are ML and JPM ready to accept this risk?
a) Because ML and JPMorgan would be forced to subscribe the debt that they are not able to syndicate to others
b) ML and JPMorgan are ready to accept this risk in order to get the deal.
7/ Why is FCX using a mixture of shares and convertibles for its equity offering rather than going the “easier route” of using just a straight share issue?
8/What are the special features of the convertible issue compared to a traditional convertible?
9/ Comment on/explain the share price performance of FCX and Phelps Dodge between 19th November 2006 and 19th March 2007