Mr. Market did not react well to the announcement. Shares of Freeport plunged more than 14 percent on heavy volume to hit as low as $31.73, its lowest level since July. The deal complicates Freeport’s business outlook, as it is no longer seen as only a copper and gold play. Furthermore, the company is paying out hefty premiums to acquire the two firms. Freeport is paying about $50 a share for Plains, representing a 39 percent premium to the firm’s prior day closing price. Meanwhile, Freeport is paying $14.75 a share for McMoRan, a 74 percent premium.
CHEAT SHEET Analysis: Trends Support the Industry in which Freeport Operates
One of the core components of our CHEAT SHEET Investing Framework explains that companies riding macro trends tend to outperform those which don’t. Think of the investing proverb, “A rising tide raises all boats.” The growing world needs energy and metals like copper (NYSE:JJC). Furthermore, massive central bank easing taking place around the globe provides support to gold (NYSEARCA:GLD) and other commodities across the board. However, when shares decline as sharply as Freeport has done, it may be best to take a step back and avoid trying to catch a falling knife.
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