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Icahn's fingerprints seen on oil, gas exec dump at Freeport-McMoRan


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Icahn's fingerprints seen on oil, gas exec dump at Freeport-McMoRan

After taking billions of dollars in charges to write downthe value of its oil and gas subsidiary, the mining giant April 5, a familiar move for the company's largest shareholder, Carl Icahn.

Freeport said four former top executives of ,which Freeport bought in 2013, would be replaced by Executive Vice President forOperations MarkKidder, and the oil and gas unit would become a division inside the largercompany.

In August 2015, Icahn disclosed that he owned more than 8%of Freeport's outstanding shares. Freeport posted losses of $4.1 billion in thefourth quarter of 2015 and $12.1 billion for the full year, attributing thebulk of the red ink to reductions in the value of its mostly offshore Gulf ofMexico oil and gas reserves due to low prices.

"Since Carl Icahn has been involved with Freeport, Ithink he sees that the sum of the parts is greater than the whole,"S&P Global Market Intelligence equity analyst Matt Miller said in aninterview. He said he believes Icahn will push for a divestiture or some othermove that increases shareholder value in Freeport.

One of the first things Miller said Freeport will do is shedthe oil and gas business and return to making copper the centerpiece of itsefforts. He pegged the company's share value at $12 on a more optimistic viewfor copper, gold and oil prices in 2016 than he saw in 2015.Freeport shares were trading at $9.35 in early afternoon April 5, down 7 centson the day.

"We see this move as consistent with [Freeport's] debtreduction initiatives and our belief that its oil and gas unit will either bepartly or fully divested, or [Freeport] will pursue a joint venture,"Miller wrote in a note after the firings were announced.

Morningstar Inc. analyst Daniel Rohr hinted at Icahn's involvement,noting that the departure of the executives may have been due to "dissatisfiedshareholders." But he did not share Miller's assessment ofthe company's plans for its oil and gas business.

"The decision to decapitate the oil and gas business diminishesthe likelihood of a spin-off, leaving asset sales the more likely option as thecompany looks to strengthen its balance sheet amid weak commodity prices,"Rohr told his clients in an April 5 note. He values Freeport at $2.30 per sharebased on his expectation of continued low metals, oil, and gas prices.

Icahn has a well-developed track record of buying big stakesin energy companies and then engineering the dismissal of top executives whoare not aboard the Icahn train, as demonstrated in the firings of companyfounders such as Aubrey McClendon from ChesapeakeEnergy Corp. and Charif Souki at Cheniere Energy Inc.

Freeport bought Plains and McMoRan Exploration Co. for about $19 billion, includingdebt, in 2013, just in time to ride the oil and natural gas price curve down.

Although Freeport filed for an IPO of the oil and gascompany in June 2015, it never pushed that plan to fruition and announced inOctober 2015 that a public offering was only one of several strategic optionsavailable to it.

The move to dump the Freeport-McMoRan Oil & Gasmanagement team of CEO Jim Flores, President Doss Bourgeois, CFO WinstonTalbert, and General Counsel John Wombwell could not have come soon enough forRohr, who was among many criticizing the original 2013 deal because ofconflict-of-interest accusations. Plains, McMoRan and Freeport executives hadserved on one another's boards of directors and held stakes in one another'scompanies.

Without admitting wrongdoing, Freeport agreed in January topay shareholders $137.5 million to resolve a lawsuit in Delaware Chancery Courtthat made the conflict-of-interest accusations.

"Freeport's shareholders have suffered in the yearssubsequent to the company's ill-timed and overpriced foray into oil and gas,"Rohr wrote April 5. "While this is largely a consequence of falling pricesfor everything, Freeport's hefty post-deal debt burden has magnified the impacton shareholder value."