UPDATE 7-Freeport makes $9 bln energy bet; Wall Street pans deal
* Freeport to pay $6.9 bln for Plains, $2.1 bln for McMoRan
* Deals allow Freeport to diversify into U.S. oil, gas
* Three-quarters of 2013 earnings to come from mining
* Freeport shares sink amid deal concerns
By Michael Erman and Julie Gordon
Dec 5 (Reuters) - Freeport-McMoRan Copper & Gold Inc struck a deal to buy Plains Exploration & Production Co and McMoRan Exploration Co for $9 billion in a bold bid to diversify into the U.S. energy sector as copper's prospects wane.
But Freeport's shares tumbled 16 percent, and the cost of protecting its debt against default soared, as investors and analysts slammed the move as unnecessary.
The deal also means a huge windfall for the top executives involved. McMoRan Chairman Jim Bob Moffett could collect $73 million cash for his shares, while Plains Chief Executive Jim Flores stands to get $65.4 million for his. Flores is also in line for a change-in-control payout of as much as $150 million.
On paper the deal reshapes Freeport, which is one of the world's largest copper miners and is concentrated outside the United States. Plains and McMoRan are concentrated in energy plays in California, Texas and the Gulf of Mexico.
About a quarter of the combined company's 2013 operating earnings would come from oil and gas, an attractive shift for the company at a time when the U.S. is poised to become the world's top oil producer.
But an influential London fund manager, representing one of Freeport's top-five shareholders, publicly condemned the deal as a betrayal of investors.
"I haven't heard anything on this call that in any way justifies why these companies should be put together," Evy Hambro, a managing director at BlackRock, said in the most pointed comments on a contentious conference call that lasted nearly two hours.
Units of BlackRock control 6.4 percent of Freeport, according to Thomson Reuters data.
Hambro, like analysts earlier in the day, said Freeport investors wanted copper exposure, and that if they wanted to invest in oil and gas they could have done so directly.
Only a handful of major miners have diversified beyond core metals and bulk commodities into oil and gas. Among these are BHP Billiton, the world's largest diversified miner, which sees its exposure to oil and shale gas, in particular, as a key differentiating factor.
"When you include the assets as well as the production upside Plains achieved from the recent Gulf of Mexico acquisition, you have a formidable entity with a worldwide presence," Global Hunter Securities analyst Curtis Trimble said, referring to a recent deal Plains did with BP Plc.
The latest deal would also give Freeport new growth opportunities. Analysts have said copper mining companies have found it increasingly difficult to find new projects in politically stable countries, and there are fewer deal targets after almost a decade of mega-mergers.
"I do think it could partly reflect that the miners are starting to look elsewhere," said Alex Terentiew, an analyst with Raymond James Ltd in Toronto. "These are depleting assets, and if you do not keep investing in new assets, come 10-20 years down the road you're going to have nothing left."
Freeport is paying a premium of 39 percent for Plains and 74 percent for McMoRan, based on their closing stock prices on Tuesday, for the chance to explore those new opportunities.
If successful, the deal would unite companies with a shared history. Both Freeport-McMoRan Copper & Gold and the company now known as McMoRan Exploration Co were spun off in the 1980s and 1990s from the former Freeport-McMoRan Inc.
Moffett is chairman of Freeport-McMoRan and also co-chairman and chief executive of McMoRan Exploration. In addition, Plains owns nearly one-third of McMoRan Exploration's shares after a 2010 asset sale deal.
Freeport shares dropped $6.11 to $32.17, erasing gains made over the last five months. Its bonds sank and the cost of protecting its debt against a default rose 11 percent.
Shares of both Plains and McMoRan Exploration rallied, though some analysts said the deal undervalued Plains, which has prospects in California and the Haynesville Shale in Texas.
"Any way you slice it, based on enterprise value, reserves, it comes up to at least $60-$70 per share. I would be surprised if a current Plains shareholder doesn't agitate for higher value," Morningstar analyst Mark Hanson said.
Freeport said it would pay $25 cash and 0.6531 shares of its common stock for each Plains share, adding up to $50 per share, or a total deal value of $6.9 billion.
In the other deal, Freeport will pay $14.75 cash for each McMoRan share, or $2.1 billion, after taking into account shares of McMoRan that Freeport and Plains already own. McMoRan shareholders would also get 1.15 units of a royalty trust for each share held.
Plains shares rose 23.4 percent to $44.50, while shares in McMoRan rose 87 percent to $15.84. The sharp swings in share prices meant that Freeport's offer for Plains was worth $4 less per share than when it was announced.
People familiar with the merger, speaking on condition of anonymity, said that neither deal was conditional on the other.
Moffett will continue as chairman of the combined entity after the deal closes and Freeport's Richard Adkerson will be president, chief executive and vice chairman. Flores will be vice chairman of Freeport and CEO of the oil and gas operations. The corporate headquarters will be in Phoenix.
J.P. Morgan Chase has agreed to provide $9.5 billion in financing, Freeport said, to cover the cash considerations and to repay Plains' term loans and revolving credit line.
Credit Suisse was financial adviser to the special committee of Freeport's board, and Wachtell, Lipton, Rosen & Katz was legal adviser.
Evercore Partners was the financial adviser to the special committee of McMoRan's board, and Weil, Gotshal & Manges was legal adviser.
For Plains, Barclays served as financial adviser, and Latham & Watkins was the legal adviser.
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