Freeport-McMoRan: Financing an Acquisition

Case Solution

David P. Stowell, Peter Rossmann
Kellogg School of Management ()

FreeportMcMoRan’s acquisition of Phelps Dodge created the world’s largest listed copper company. JPMorgan and Merrill Lynch advised the acquirer and agreed to $ 17.5 billion in debt financing and $ 1.5 billion in lines of credit. Additionally, these two companies subscribed $ 5 billion in capital through simultaneous offerings of FreeportMcMoRan common shares and mandatory convertible preferred shares. This financing created an optimal capital structure for the company, leading to a stronger credit rating. The activities of the Equity Sales and Capital Market Groups in the issuing houses are examined and the structure and advantages of mandatory convertible preferred shares are explained.

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