Plains Exploration Board Approves Freeport-McMoRan Deal

--Approval to merge Plains Exploration oil and gas business with miner Freeport-McMoRan

--Merger expected to close May 31

--Analysts wonder whether merger makes sense

Plains Exploration & Production Co.'s (PXP) board Monday approved a $6.5 billion merger with Freeport-McMoRan Copper & Gold Inc. (FCX), overcoming earlier pressure to reject the deal.

The deal gives Freeport-McMoRan sizeable oil and natural-gas production assets to add to its mining business. Many in the industry questioned whether the two companies would profitably complement each other, however, forcing Plains Exploration to announce a special dividend of $3 a share if the deal went through.

Plains Exploration's dividend was "understandable as pressure had been mounting in recent weeks to vote against the deal," said analysts with Tudor, Pickering, Holt & Co.

Freeport-McMoRan agreed in December to pay the cash-and-stock equivalent of $50 a share for Plains Exploration, while also unveiling plans to acquire McMoRan Exploration Co. (MMR) for $3.4 billion in cash.

Freeport-McMoRan's intentions to acquire the two oil explorers came under fire from investors who say the tie-up is riddled with conflicts of interest as six directors will have overlapping roles at Freeport and McMoRan. At the same time, Freeport shares have declined sharply since the offer was unveiled in December. But Freeport said earlier this month it wouldn't increase its offer, ending speculation the deal might be boosted.

Plains on Monday said the special dividend will be paid immediately prior to the completion of its merger with Freeport-McMoRan, which has also approved the payout.

Meanwhile, Freeport-McMoRan's board intends to declare a supplemental $1 dividend immediately following the closing of its Plains acquisition.

Freeport-McMoRan also said it plans to complete $1.5 billion in asset sales from the combined company and will reduce its capital-spending plans.

Paulson & Co. Inc., whose funds own about 9.9% of Plains shares, said Monday that it "appreciates the flexibility of both Plains and Freeport in adding incremental cash to the transaction," and will vote in favor of the merger.

Plains Exploration shares were trading 6.98% higher Monday at $48.73 while Freeport-McMoRan shares were down 1.32% at $32.25.

Write to Ben Lefebvre at [e-mail]

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