SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9/A
(AMENDMENT NO. 4)
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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ASARCO INCORPORATED
(Name of Subject Company)
ASARCO INCORPORATED
(Name of Person(s) Filing Statement)
COMMON STOCK, NO PAR VALUE PER SHARE
(Title of Class of Securities)
043413103
(CUSIP NUMBER OF CLASS OF SECURITIES)
FRANCIS R. MCALLISTER
ASARCO INCORPORATED
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
180 MAIDEN LANE
NEW YORK, NEW YORK 10038
(212) 510-2000
(Name, address and telephone number of person
authorized to receive notice and communications on
behalf of the person(s) filing statement).
With Copies to:
J. MICHAEL SCHELL
MARGARET L. WOLFF
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
This Amendment No. 4 to the Solicitation/Recommendation Statement on
Schedule 14D-9 relates to the exchange offer for all of the outstanding
shares of ASARCO Common Stock which is described in a Tender Offer
Statement on Schedule 14D-1 of Phelps Dodge Corporation, a New York
corporation ("Phelps Dodge"), filed with the Securities and Exchange
Commission on September 3, 1999, which incorporates the prospectus of
Phelps Dodge contained in the Registration Statement on Form S-4 of Phelps
Dodge filed with the Commission on August 27, 1999, as amended by Amendment
No. 1 thereto filed with the Commission on September 1, 1999 and Amendment
No. 2 thereto filed with the Commission on September 2, 1999.
ITEM 9 MATERIAL TO BE FILED AS EXHIBITS.
Item 9 is hereby amended and supplemented by adding the following
Exhibit:
Exhibit 23. Letter to Shareholders of ASARCO and Cyprus Amax.
Exhibit 24. Complaint filed in Asarco v. Phelps Dodge, U.S. District Court,
Southern District of New York, September 20, 1999.
Exhibit 25. Press Release of ASARCO, dated September 20, 1999.
EXHIBIT 23
SEPTEMBER 17, 1999
Dear Shareholders:
THE ASARCO CYPRUS MERGER MEANS ENHANCED SHAREHOLDER VALUE. By VOTING FOR
the Asarco Cyprus merger on September 30, you will:
o own the largest publicly-traded copper company in the world;
o receive a cash payment of $5.00 per Asarco Cyprus share
after the merger's closing; and
o realize ongoing value through Asarco Cyprus' global
presence, world-class properties, enhanced financial
strength and increased shareholder liquidity.
By VOTING FOR the Asarco Cyprus merger, you are voting for a transaction
that:
o is accretive to shareholders;
o positions shareholders to benefit from 100 percent of the
$275 million of annual cost savings created by the merger;
and
o gives shareholders an investment unequalled in the copper
industry in terms of the combination of a pipeline of growth
properties, operating efficiencies and earnings power.
By VOTING FOR the Asarco Cyprus merger YOU WILL SUBSTANTIALLY INCREASE THE
POTENTIAL VALUE AND POWER OF YOUR INVESTMENT.
This is why Phelps Dodge wants to breakup the Asarco Cyprus merger. PHELPS
DODGE DOES NOT WANT YOU to create Asarco Cyprus. Phelps Dodge would rather
have you GIVE UP MUCH OF WHAT YOU WOULD REALIZE IN AN ASARCO CYPRUS
COMBINATION TO PHELPS DODGE'S SHAREHOLDERS.
In the three-way deal proposed by Phelps Dodge, Asarco Cyprus would
contribute:
o 57% of production;
o 61% of reserves;
o lower cash costs;
o 4 of the 5 lowest cost mines;
o 60% of the copper margin;
o 92% of the synergies; and
o 91% of the cash.
Yet, for all this, PHELPS DODGE WILL ONLY GIVE YOU 43% OF THE OWNERSHIP.
In a virtually unprecedented action, Cyprus Amax and Asarco publicly stated
the offer price at which they would consider a three-way combination with
Phelps Dodge. Phelps Dodge ignored this response and proceeded with an
expensive and hostile solicitation, including several lawsuits in an
attempt to break up our merger.
We think you should know that Phelps Dodge can't complete its exchange
offer by September 30. Also, its offers are subject to numerous
conditions, including anti-trust clearance and the approval of its own
shareholders.
THE CYPRUS AMAX AND ASARCO BOARDS UNANIMOUSLY REJECTED PHELPS DODGE'S
EXCHANGE OFFERS AS INADEQUATE AND NOT IN THE BEST INTERESTS OF CYPRUS AMAX
AND ASARCO SHAREHOLDERS. THE BOARDS UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS VOTE FOR THE MERGER ON SEPTEMBER 30, 1999.
It is the only transaction that assures you of value. It is the only
transaction you can count on.
We thank you for your support. We urge you to sign, date, and mail the
WHITE proxy card today.
/s/ Francis R. McAllister /s/ Milton H. Ward
Francis R. McAllister Milton H. Ward
Chairman and Chief Executive Chairman, Chief Executive
Officer officer and President
ASARCO Incorporated of Cyprus Amax Minerals Company
IMPORTANT
If your shares of Common Stock are held in the name of a bank or brokerage
firm, only that firm can execute a proxy card on your behalf. Please
contact the person responsible for your account and give instructions for a
WHITE proxy card to be voted FOR the merger.
If you need assistance or information, please call our proxy solicitors:
Asarco Shareholders: Cyprus Amax Shareholders:
MORROW & CO., INC. GEORGESON
at (800) 662-5200 SHAREHOLDER
or CHRIS SCHULTZ, Treasurer, Asarco COMMUNICATIONS INC
at (212) 510-2329 at (800) 223-2064
or JOHN TARABA, VP and Controller,
Cyprus Amax
at (303) 643-5244
TO ALL ASARCO CYPRUS SHAREHOLDERS
SINCE ASARCO CYPRUS BRINGS THIS TO A THREE WAY COMBINATION WITH PHELPS
DODGE......
COPPER PRODUCTION CASH
[Pie chart depicting copper production [Pie chart depicting cash
brought by Asarco Cyprus (57%) and brought by Asarco Cyprus (91%)
Phelps Dodge (43%)] and Phelps Dodge (9%)]
COPPER RESERVES COPPER MARGIN
[Pie chart depicting copper reserves [Pie chart depicting copper margin
brought by Asarco Cyprus (61%) and brought by Asarco Cyprus (60%) and
Phelps Dodge (39%)] Phelps Dodge (40%)]
LOW COST MINES SYNERGIES
[Pie chart depicting low cost mines [Pie chart depicting synergies
brought by Asarco Cyprus (80%) and broughtby Asarco Cyprus (92%) and
Phelps Dodge (20%)] Phelps Dodge (8%)]
WHY SHOULD YOU BECOME A MINORITY OWNER?
OWNERSHIP
[Pie chart depicting ownership of Asarco
Cyprus (43%) and Phelps Dodge (57%)]
VOTE "FOR" THE ASARCO CYPRUS MERGER
ON SEPTEMBER 30
Exhibit 24
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
________________________________________
)
ASARCO INCORPORATED, )
)
Plaintiff, ) Civil No.
)
v. ) COMPLAINT
)
PHELPS DODGE CORPORATION, )
)
Defendant. )
________________________________________)
Plaintiff, Asarco Incorporated ("Asarco"), by its attorneys,
brings this action against the named defendant for a declaratory judgment,
preliminary and permanent injunctive relief, and damages under the federal
antitrust laws and applicable tort law. Plaintiff, upon knowledge as to
itself and its own acts, and upon information and belief as to all other
matters, alleges as follows:
JURISDICTION AND VENUE
1. This action is brought pursuant to the Declaratory Judgment
Act, 28 U.S.C. section 2201, for a declaration that defendant's proposed
takeover of plaintiff and plaintiff's merger partner, Cyprus Amax Minerals
Company ("Cyprus"), would violate the federal antitrust laws. Plaintiff
also seeks to prevent and restrain violations by defendant of Section 7 of
the Clayton Act, 15 U.S.C. section 18, to recover its attorneys fees and
costs pursuant to Section 16 of the Clayton Act, 15 U.S.C. section 26, and
seeks damages and injunctive relief due to defendant's tortious conduct.
2. This Court has jurisdiction over this action pursuant to
Section 16 of the Clayton Act, 15 U.S.C. section 26, and Sections 1331 and
1337 of the Judicial Code, 28 U.S.C. sections 1331, 1337. This Court has
supplemental jurisdiction over plaintiff's tort claims pursuant to Section
1367 of the Judicial Code, 28 U.S.C. section 1367.
3. Defendant Phelps Dodge Corporation ("Phelps Dodge") is found
in and transacts business in this District. It is engaged in commerce and
is within the jurisdiction of this Court for purposes of service of
process.
4. Venue is proper in this District pursuant to Section 12 of
the Clayton Act, 15 U.S.C. section 22, and Section 1391 of the Judicial
Code, 28 U.S.C. section 1391.
THE PARTIES AND OTHER RELEVANT ENTITIES
Asarco
5. Plaintiff Asarco is a corporation organized and existing
under the laws of New Jersey with its principal executive offices located
at 180 Maiden Lane, New York, New York. Asarco is one of the largest
producers of copper in the United States and in the world, and also
produces specialty chemicals and aggregates. Asarco's copper business
includes integrated mining, smelting, and refining operations primarily in
the United States and also, through a majority-owned subsidiary, in Peru.
6. Asarco is a publicly-held corporation whose common
stock is listed and traded on the New York Stock Exchange.
7. In its fiscal year ending December 31, 1998, Asarco and
its various subsidiaries had total sales of products and services of
$2,233,068,000, and total assets of $4,023,809,000.
Phelps Dodge
8. Defendant Phelps Dodge is a corporation organized and
existing under the laws of New York with its principal executive offices
located at 2600 N. Central Avenue, Phoenix, Arizona. Phelps Dodge is the
largest copper producer in the United States and one of the largest such
producers in the world, and also has other mining interests. Phelps Dodge
is a leading manufacturer of electrical wire and cable. It also produces
carbon black. Phelps Dodge's copper business includes integrated mining,
smelting, and refining operations primarily in the United States and also
in Peru and Chile.
9. Phelps Dodge is a publicly-held corporation whose
common stock is listed and traded on the New York Stock Exchange.
10. In its fiscal year ending December 31, 1998, Phelps
Dodge and its various subsidiaries had total sales and operating revenues
of $3,063,400,000, and total assets of $5,036,500,000.
Cyprus
11. Cyprus is a corporation organized and existing under the
laws of Delaware with its principal executive offices located at 9100 East
Mineral Circle, Englewood, Colorado. Cyprus is one of the largest
producers of copper in the United States and in the world, and is also
engaged in the exploration for and extraction, processing, and marketing of
other mineral resources. Cyprus's copper business includes integrated
mining, smelting, and refining operations primarily in the United States
and also in Peru and Chile.
12. Cyprus is a publicly-held corporation whose common
stock is listed and traded on the New York Stock Exchange.
13. In its fiscal year ending December 31, 1998, Cyprus and
its various subsidiaries had total revenue of $2,566,000,000, and total
assets of $5,341,000,000.
NATURE OF THE COMPLAINT
14. Asarco is bringing this lawsuit to stop an unlawful attempt
by Phelps Dodge, the largest copper producer in the United States and one
of the largest private-sector copper producers in the world, to break up a
merger of two of its competitors -- Asarco and Cyprus. The Asarco-Cyprus
merger, which the boards of directors of the two companies have unanimously
endorsed, would create a company with larger and more efficient annual
copper production, and larger ore reserves, than Phelps Dodge.
15. Seeking to avoid competing in the marketplace with such a
new rival, Phelps Dodge has taken a series of significant actions since the
merger announcement designed to prevent the formation of the new company.
Most notably, Phelps Dodge has launched hostile takeover bids for both
Asarco and Cyprus. In the course of doing so, however, Phelps Dodge has
represented to Asarco's and Cyprus's shareholders that it will withdraw its
offers for their common stock if they vote to approve the Asarco-Cyprus
merger. This shareholder vote is scheduled for September 30, 1999.
Critically important, even though Phelps Dodge began its unlawful endeavor
on August 10, 1999, and publicly announced its hostile takeover attempt on
August 27, 1999, it did not seek government approval for the giant
corporation that would result from the combination of all three companies
until September 10, 1999. The apparent purpose of this delay was to ensure
that the initial 30-day period for government review of Phelps Dodge's
application would not expire until after the September 30 shareholder vote
on the Asarco-Cyprus merger, and thus to avoid the very real potential of a
governmental "second request" for additional information, which would
create substantial delay and uncertainty. In addition, Phelps Dodge has
filed meritless lawsuits against Asarco and Cyprus executives, and made
misleading public statements regarding the value of the Asarco-Cyprus
merger, the terms of the merger, and alleged mismanagement of the assets of
Asarco and Cyprus by their respective management teams. These actions
reveal that Phelps Dodge's apparent purpose is to prevent Asarco and Cyprus
from consummating their merger and creating a strong competitor in the
copper industry.
16. Phelps Dodge's proposed takeover of Asarco and Cyprus
would violate the antitrust laws by creating the largest copper company in
the world, with more than 50% of western world mining capacity and more
than 80% of U.S. mining capacity. In prior litigated cases, courts have
held that mergers of copper companies resulting in much smaller market
shares were unlawful. The transaction is also likely to raise prices to
U.S. customers for copper rod by creating a single firm with nearly 80% of
U.S. copper rod capacity available for sale. The antitrust issue is
especially serious because Phelps Dodge is a major producer of copper wire;
thus, the proposed transaction would render other producers of copper wire
dependent on a competitor for an essential input to their operations.
17. Phelps Dodge's proposed combination with Asarco and
Cyprus raises serious antitrust issues, and its tortious conduct in
pursuing that combination has already damaged Asarco and poses an ongoing,
unlawful threat to the Asarco-Cyprus merger.
THE COPPER INDUSTRY
18. The primary copper industry comprises three basic levels of
operation: the mining and milling of copper ores to produce copper
concentrates; the smelting of copper concentrates to produce copper anode
and blister; and the electrolytic or fire refining of copper anode and
blister to produce primary copper cathode. Large integrated copper
companies -- such as Asarco, Cyprus, and Phelps Dodge -- operate at all
three of these levels. A newer process, known as "solvent extraction
electrowinning" ("SX-EW") involves the use of acid solvents on ore to leach
copper in solution from the ore; copper is then recovered from the leachate
by chemical and electrolytic processes. The end product of the SX-EW
process is copper cathode that is functionally identical to the copper
cathode produced by the more traditional milling, smelting, and refining
process.
Copper Cathode
19. Copper cathode is customarily sold in the United States on
an as-delivered basis (i.e., the refiner/seller delivers the copper to the
buyer), at a premium over the price for refined copper established by the
Commodities Exchange ("COMEX"). The premium reflects the freight costs
incurred by the refiner to deliver the cathode, the fact that payment
generally is not due until some time (such as 30 days) after shipping, and
market forces.
20. In times of limited supply, buyers also purchase copper
cathode from independent merchants who maintain product in warehouses.
Merchants charge buyers the COMEX price plus a premium. The premium
reflects the cost incurred by the merchant to store the copper, a
substantial fee for removing the copper from the warehouse, and a fee
associated with loading the copper for transport. The premiums added to
the commodities price by merchants can be significantly higher than the
premiums added by refiners.
21. The courts have historically viewed the relevant
geographic market for copper cathode, for antitrust purposes, as the United
States. See, e.g.,United States v. Amax, 402 F. Supp. 956 (D. Conn. 1975).
22. Because of their geographical proximity to the United
States, Mexican and Canadian producers of refined copper generally do not
face the same significant ocean freight costs as do South American
producers and others. In addition, as a result of the North American Free
Trade Agreement (NAFTA), Mexican and Canadian producers also do not have to
pay duties on their United States copper sales. Imports from Chile, the
major exporter of refined copper to the United States, by contrast, are
assessed a tax equal to one percent of the value of the product.
23. The fact that certain countries outside of North
America (notably Chile) produce copper cathode and export it to the United
States provides some support for considering the relevant geographic market
to be broader than the U.S. or NAFTA countries. If one were to accept the
relevance of such a broader market, it should be limited to western world
countries, to reflect, among other things, the fact that copper produced in
Russia, China, and other non-western countries typically does not meet the
specifications of COMEX or the London Metal Exchange ("LME"). See
Consolidated Gold Fields PLC v. Minorco S.A., 871 F.2d 252, 261 (2d Cir.)
(excluding eastern bloc countries from gold market), cert. denied, 492 U.S.
939 (1989). In addition, there is a substantial basis for excluding
government-owned producers from the market because they often act in
response to political and other non-economic concerns, rather than
traditional market forces.
Copper Rod
24. All major integrated copper companies that produce primary
copper cathode from mine-produced copper also manufacture and sell
continuous cast copper rod. Continuous cast copper rod is manufactured by
melting copper cathode, usually in a shaft furnace, and casting the copper
into large continuous coils of rod. Manufacturers sell continuous cast rod
principally to wire and telecommunications companies, which fabricate it
into electrical wire and cable.
25. Like copper cathode, continuous cast rod is customarily
sold in the United States on an as-delivered basis at the COMEX price plus
a premium. In addition to the factors reflected in the cathode premium,
the rod premium reflects the costs involved in manufacturing rod from
cathode. As a result, the premium for rod is customarily higher than the
premium for cathode.
26. The relevant geographic market, for antitrust purposes,
for continuous cast copper rod is in all likelihood no broader than North
America. Copper rod oxidizes when exposed to air, and is relatively
fragile compared to other refined copper products. If the surface of the
copper rod is damaged in shipment or becomes oxidized from exposure to air,
it is not suitable for making copper wire. Because of these limitations,
copper rod generally is not transported long distances by ship. Indeed, to
Asarco's knowledge, there are no non-trivial imports of copper rod into the
United States except from Canada and Mexico.
THE ASARCO-CYPRUS MERGER
27. On May 7, 1999, Asarco and Cyprus began discussions
regarding a potential strategic combination of the two companies.
28. On May 18, 1999, Asarco and Cyprus entered into a
confidentiality agreement. The two companies met the following day to
discuss transaction structures and potential management and board
composition for the combined company. They agreed at that time to begin
conducting due diligence investigations and to prepare documentation for a
merger-of-equals transaction.
29. On July 14-15, 1999, representatives of Asarco and
Cyprus and their respective legal advisors finalized the merger agreement.
After receiving approval from their respective boards of directors, Asarco
and Cyprus executed the merger agreement and issued a joint press release
following the close of trading on the New York Stock Exchange on July 15,
1999.
30. In order to protect the merger agreement during the
period necessary for regulatory and shareholder approval, the merger
agreement incorporated customary exclusivity provisions by which the two
companies and their directors, officers, employees and representatives
pledged, during the pendency of the proposed Asarco-Cyprus merger, to
refrain from soliciting or encouraging any takeover proposal or separately
negotiating with or entertaining independent inquiries from third parties.
31. The merger agreement is a valid, complete, and binding
agreement insofar as it obligates both parties to refrain from
consideration of other offers pending a shareholder vote on the Asarco-
Cyprus merger scheduled for September 30, 1999. This agreement is a
reasonable attempt to ensure that the shareholders of both Asarco and
Cyprus have the final determination on whether the Asarco-Cyprus merger
should be completed. Indeed, the agreement:
o assures both partners to the merger that the
proposed Asarco-Cyprus merger which under
applicable law is not a "sale" of either company
would not trigger an auction for either company's
assets;
o secures the best available deal strategically
and financially for the shareholders of both
companies; and
o increases the likelihood that the Asarco-
Cyprus merger would be accomplished without
expensive litigation or proxy battles.
32. The existence of the merger agreement was known to Phelps
Dodge management from the first day on which existence of the agreement was
made public.
33. The merger will create the largest publicly-traded
copper company in the world, which will be named Asarco Cyprus Incorporated
("Asarco Cyprus"). Under the terms of the transaction, Cyprus shareholders
will receive 0.765 shares of Asarco Cyprus common stock for each share of
Cyprus common stock they own and Asarco shareholders will receive one share
of Asarco Cyprus common stock for each share of Asarco common stock they
own. Asarco and Cyprus anticipate that approximately 109 million shares of
Asarco Cyprus common stock will be issued to current stockholders of Asarco
and Cyprus in the merger. Former Asarco stockholders will own
approximately 39.8 (36.5%) million shares and former Cyprus stockholders
will own approximately 69.2 (63.5%) million shares of Asarco Cyprus stock.
As soon as possible after final shareholder approval of the merger, Asarco
and Cyprus also intend to make a special payment of $5 per share to the
stockholders of Asarco Cyprus.
34. As of the date of this Complaint, the United States
Department of Justice has allowed the waiting period for review of the
Asarco and Cyprus merger under the Hart-Scott-Rodino Act to expire.
Accordingly, only the approval of the Asarco and Cyprus shareholders is
required to consummate the merger. The boards of directors of Asarco and
Cyprus have recommended that their respective shareholders vote in favor of
the merger at special shareholder meetings scheduled for September 30,
1999.
35. In sum, Asarco Cyprus would be a potent competitor for
Phelps Dodge, currently the largest U.S. producer of copper. Asarco Cyprus
would surpass Phelps Dodge in the following respects:
o Asarco Cyprus would become the largest copper
producer in the U.S. and the largest non-
government-owned copper producer in the world,
producing 2 billion pounds annually versus Phelps
Dodge's 1.7 billion pounds.
o Asarco Cyprus would have a cash cost of
production of 50 cents per pound of copper, lower
than Phelps Dodge.
o Asarco Cyprus would have a break even price
below 65 cents per pound, lower than Phelps Dodge.
o Asarco Cyprus would have larger ore reserves
than Phelps Dodge.
o Asarco Cyprus would have market capitalization
approaching that of Phelps Dodge. Together
with the other advantages of Asarco Cyprus
described above, the combined entity would
have a real prospect of becoming the premier
publicly-traded copper investment opportunity.
THE PHELPS DODGE ATTEMPTED TAKEOVER
36. On August 10, 1999, more than three weeks after Asarco and
Cyprus had finalized their merger-of-equals transaction agreement, Phelps
Dodge Chief Executive Officer Douglas C. Yearley contacted Asarco Chief
Executive Officer Francis R. McAllister and Cyprus Chief Executive Officer
Milton H. Ward to propose a meeting to discuss a three-way combination of
Asarco, Cyprus, and Phelps Dodge. Mr. McAllister and Mr. Ward declined to
participate in the meeting, specifically informing Mr. Yearley that the
merger agreement between Asarco and Cyprus prohibited them from discussing
business combinations with third parties.
37. Notwithstanding Mr. McAllister's and Mr. Ward's
rejection of his initial overture and his knowledge of their contractual
obligations, Mr. Yearley once again proposed a three-way merger, which was
subject to a number of contingencies, in an August 11, 1999, letter to the
two executives. Pursuant to Phelps Dodge's unsolicited proposal, Asarco
and Cyprus shareholders would receive 0.3576 of a Phelps Dodge common share
for each Asarco common share and 0.2874 of a Phelps Dodge common share for
each Cyprus common share. The letter stated that Phelps Dodge was "firmly
committed to moving forward quickly to consummate" the proposed
transaction.
38. On August 12, 1999, Mr. McAllister and Mr. Ward
declined to discuss with Mr. Yearley the proposed three-way merger, again
noting their obligations under the merger agreement. Nevertheless, that
same day, Phelps Dodge made the same proposal directly to the Asarco and
Cyprus boards of directors. In its cover letters to the two boards, Phelps
Dodge reiterated that it was "resolute in [its] determination to complete
this transaction with both companies."
39. On August 19, 1999, the Asarco and Cyprus boards of
directors each met to consider the Phelps Dodge proposal. At these
meetings, both boards unanimously determined that pursuing the Asarco-
Cyprus merger was in the best interests of their stockholders and
reconfirmed their recommendations of the two-way merger between Asarco and
Cyprus and rejected the Phelps Dodge proposal.
40. On August 20, 1999, Phelps Dodge was notified of these
decisions. That same day Phelps Dodge mailed a revised proposal to the
Asarco and Cyprus boards of directors. Pursuant to the revised proposal,
Asarco and Cyprus shareholders would receive 0.4098 of a Phelps Dodge
common share for each Asarco common share and 0.3135 of a Phelps Dodge
common share for each Cyprus common share.
41. On August 25, 1999, Asarco and Cyprus informed Phelps
Dodge by letter of their continued belief that the two-way merger upon
which they had already agreed provided greater value to their shareholders
and posed fewer regulatory issues than Phelps Dodge's proposed three-way
merger.
42. Phelps Dodge's response, on August 27, 1999, was to file
registration materials with the Securities and Exchange Commission
supporting a hostile exchange offer directly to the shareholders of
outstanding Asarco and Cyprus common stock. On the same date, Phelps Dodge
simultaneously commenced substantially identical civil litigation in New
Jersey and Delaware against Asarco and Cyprus seeking, among other things,
to prevent the Asarco and Cyprus shareholders from voting on the Asarco-
Cyprus merger on September 30, 1999.
43. On information and belief, Phelps Dodge had intended and
planned for a hostile takeover campaign, including such litigation and
registration materials, before receiving the response of the Asarco and
Cyprus boards to its August 12, 1999, proposal.
44. On August 27, 1999, Phelps Dodge threatened that, if
Asarco and Cyprus completed their two-way merger, Phelps Dodge would
withdraw its proposal and the two companies would "proceed alone." Phelps
Dodge's threat to withdraw its offer if the Asarco-Cyprus merger occurs
lacks any legitimate economic or legitimate business purpose. Because the
combined Asarco Cyprus entity would be more valuable than the sum of its
two constituent companies separately, the merged companies should be at
least equally attractive as a merger partner. Phelps Dodge's apparent
intent is to prevent Asarco and Cyprus from realizing the substantial
increase in value to their companies upon the consummation of the Asarco
Cyprus merger and to prevent Asarco Cyprus from becoming a potent
competitor to Phelps Dodge.
45. On September 3, 1999, Phelps Dodge filed with the Securities
and Exchange Commission prospectuses that announced the terms of its
hostile attempt to acquire control of Asarco and Cyprus through an exchange
of Phelps Dodge stock for that of Asarco and Cyprus. Phelps Dodge also
described the hostile exchange offer in advertisements in the financial
press on September 3, 1999. The offer as announced states that it will
expire on October 1, 1999, unless extended by Phelps Dodge in its sole
discretion. By the time the October 1, 1999 date arrives, however, Phelps
Dodge's offer will remain subject to significant contingencies:
o The Phelps Dodge announcements state that
"Our offer is conditioned upon the waiting period
(and any extension thereof) applicable to the
offer under the HSR [Hart-Scott-Rodino] Act having
expired or been terminated." Because Phelps Dodge
waited until September 10, 1999, to seek
government approval, the 30-day HSR waiting period
will not have expired by October 1, 1999, and thus
there will in all likelihood be no indication as
to whether the proposed transaction will be the
subject of a request for further information (a
"second request") pursuant to the HSR Act, 15
U.S.C. section 18a. If the government makes such
a request, this will prevent consummation of the
proposed transaction for, at the very least, a
matter of months.
o The offer is subject to the approval of
Phelps Dodge shareholders, whose vote on the
matter is not scheduled until October 13, 1999.
46. The October 1, 1999 expiration date, and Phelps Dodge's
reservation of the unilateral right to continue its offer, given the
significant contingencies to which the Phelps Dodge offer will still be
subject as of October 1, means as a practical matter that Phelps Dodge will
retain unilateral control to proceed with its attempted acquisition of
Asarco and Cyprus.
47. In addition to Phelps Dodge's misleading statements as to
its objectives regarding defeat of the merger of Asarco and Cyprus, the
exchange offer materials prepared by Phelps Dodge in connection with its
exchange offer, statements made in connection with the lawsuits pending
against Asarco and Cyprus executives, and other public statements by Phelps
Dodge contain numerous inaccuracies, the purpose and effect of which is to
mislead the shareholders of Asarco and Cyprus concerning the relative
merits of Phelps Dodge's offer and the pending Asarco-Cyprus merger. The
apparent purpose of the Phelps Dodge misstatements is to turn many
shareholders, particularly of Cyprus, against the pending Asarco-Cyprus
merger. Phelps Dodge's misleading and inaccurate statements include the
following:
o inaccurate statements concerning the value of
the Asarco-Cyprus merger;
o inaccurate statements concerning the timing
and its ability to complete a three-way
transaction;
o inaccurate statements concerning the
attributes of a three-way transaction;
o inaccurate statements alleging mismanagement
of the assets of Asarco and Cyprus by their
respective management teams;
o misleading description of the Asarco-Cyprus
merger as a "no premium" transaction;
o mischaracterization of the communications
from and position of the Asarco and Cyprus boards
concerning the Phelps Dodge offer;
o false accusations that the members of the
Asarco and Cyprus boards were not using their best
business judgment in continuing to recommend
approval of the pending Asarco-Cyprus merger by
the shareholders of the two companies, but were
instead motivated by greed and self-interest.
48. As a result of the unfair and improper means by which Phelps
Dodge has interfered with the consummation of the Asarco-Cyprus merger,
Asarco is imminently threatened with harm in the form of loss of
substantial financial benefits if the Asarco-Cyprus merger is not
consummated.
Anti-Competitive Effects of Three-Way Merger
49. The three-way combination that would result if Phelps Dodge were
successful in its takeover bids of Asarco and Cyprus would have serious
potential anti-competitive effects on the copper industry. As The
Economist succinctly put it in an August 28, 1999 article, if Phelps Dodge
succeeds, it will "dominate the American market -- and, with Chile's
Codelco and Australia's BHP, the world market as well."
50. Moreover, a September 3, 1999, article in American Metal
Market reported a similar industry reaction, quoting one trader who
predicted that the proposed combination "would give the resulting company
immense control over global pricing."
COUNT ONE
(Reduction of Competition in the Business of Mining, Smelting, and Refining
Copper)
51. Asarco repeats and realleges the allegations of paragraphs 1
through 50 inclusive of this Complaint, as if fully set forth herein.
52. The effect of the proposed acquisition of Asarco and
Cyprus shares by Phelps Dodge will be to substantially lessen competition
in the business of mining, smelting, and refining copper.
53. If Phelps Dodge acquires Asarco and Cyprus, Asarco
estimates that the combined company will have 80.3% of U.S. mining
capacity, 58.4% of U.S. smelting capacity, 69.2% of U.S. refining capacity,
and 97.1% of capacity to produce copper using the SX/EW method of
production.(1) In prior litigated cases under Section 7 of the Clayton Act
in which the court considered proposed mergers of copper companies, the
court viewed the relevant geographic market as the United States and held
that proposed mergers resulting in much smaller shares of U.S. capacity
were unlawful. See United States v. Amax, Inc., 402 F. Supp. 956 (D. Conn.
1975) (granting permanent injunction); American Smelting and Refining Co.
v. Pennzoil United, Inc., 295 F. Supp. 149 (D. Del. 1969) (granting
preliminary injunction).
-----------------
(1) These percentages are based on projected capacity in the year 2000.
In calculating the capacity of the merged firm, Asarco included the
capacities of partnerships, and excluded U.S. properties owned by
The Broken Hill Proprietary Company Limited and its affiliated
companies ("BHP"). BHP recently announced that it is shutting down
all its U.S. copper operations, after extensive efforts to sell the
properties. There is no current prospect that the BHP properties
will ever go back into production.
54. Asarco is not aware of any litigated case involving a
proposed merger of copper companies that considers a relevant geographic
market broader than the United States. Even if the relevant geographic
market is broader than the United States, however, the proposed transaction
raises serious antitrust issues.
55. The three combined companies will have 48.9% of North
American mining capacity, 34.7% of North American smelting capacity, and
44.4% of North American refining capacity. These percentages indicate a
significant antitrust problem.
56. Phelps Dodge is likely to argue that the relevant geographic
market for evaluating the proposed transaction is worldwide. Even
assuming, for the sake of argument, that the relevant geographic market may
be broader than the United States or North America indeed, even if it
were worldwide in scope the proposed merger still would raise very
serious issues under Section 7, for at least two reasons.
57. First, if Phelps Dodge were to acquire Asarco and Cyprus, it
would become the largest copper producer in the world. Four companies --
Phelps Dodge, Codelco, Rio Tinto, and BHP -- would account for 46.2% of
world copper mining capacity and 54.3% of western world mining capacity.
As the leading copper producer in the world, Phelps Dodge would have the
power to move world copper prices by, for example, announcing that it is
shutting down one or more major copper mines. Phelps Dodge might combine
such an announcement with a statement that it is placing the mines on
standby, and plans to reopen them promptly if copper prices reach a
sufficiently high level. The threat of additional production by Phelps
Dodge would be a deterrent to other companies considering whether to make
the massive investments necessary to develop significant new copper mines.
Such a course of action would be consistent with prior statements by Phelps
Dodge that it is necessary to cut production of copper.
58. The likelihood that Phelps Dodge could increase copper
prices by cutting production is increased by the past behavior of Codelco
and other large copper companies. Those companies in the past have engaged
in coordinated efforts to limit production and increase prices, including
the creation of an OPEC-like organization known as "CIPEC," headquartered
in Paris. Although CIPEC subsequently disbanded, the creation of such an
organization indicates that Codelco and other former members of CIPEC might
well have a predisposition to engage in coordinated interaction that harms
consumers.
59. Second, a merger of Phelps Dodge, Asarco, and Cyprus is
likely to increase the premiums that U.S. customers must pay for refined
copper, particularly during periods when copper is in short supply. Copper
cathode is typically sold to customers in the United States at a premium
over the COMEX price for refined copper. The premium reflects
transportation costs, financing costs, and market forces. If Phelps Dodge
were to acquire Asarco and Cyprus, it might well be able to demand a higher
premium from U.S. customers for copper produced in the United States.
Particularly during periods of short supply, when suppliers outside the
U.S. have committed their production to existing customers, U.S. customers
would be compelled to pay the higher premiums for an extended period of
time.
60. Phelps Dodge would be in a position to enhance its power to
raise premiums to U.S. customers by refusing to engage in swaps of copper
with producers outside the United States. Swaps are currently used to save
the cost of physically transporting copper. Asarco regularly engages in
such swaps, generally through traders. If Phelps Dodge were to acquire
Asarco and Cyprus, it could refuse to engage in swaps in order to maximize
its advantage as the dominant producer of copper in the United States. The
result would be that customers who wished to find an alternative source of
supply would be required to incur the full costs of transporting copper
from an alternative source to the customer.
61. If Phelps Dodge succeeds in breaking up the merger of Asarco
and Cyprus, it will prevent the formation of a new, efficient, and low-cost
competitor to Phelps Dodge in the production of copper cathode. If Phelps
Dodge succeeds in acquiring Asarco and Cyprus, two existing competitors
will be removed from the market.
62. Barriers to entering the business of copper mining,
smelting, or refining in the U.S. are extremely high. The high entry
barriers arise due to the cost of locating and purchasing mineral rights to
copper deposits, and the difficulty in obtaining the environmental and
other permits necessary to open a copper mine. Entry into smelting and
refining is also extremely difficult because an extensive outlay of capital
is required, and because entry costs have increased due to stricter
environmental controls over refineries and smelters.
COUNT TWO
(Reduction of Competition in the Business of Producing Copper Rod)
63. Asarco repeats and realleges the allegations of paragraphs 1
through 62 inclusive of this Complaint, as if fully set forth herein.
64. The effect of the proposed acquisition of Asarco and Cyprus
shares by Phelps Dodge will be to substantially lessen competition in the
business of producing copper rod.
65. Asarco, Cyprus, and Phelps Dodge each produce copper rod at
rod mills in the United States. Copper rod is the feedstock used to
produce copper wire and cable, which is one of the principal uses of
refined copper.
66. Asarco operates a copper rod mill located in Amarillo,
Texas, with a capacity of 254,000 tons per year. Cyprus operates two
copper rod mills, one in Miami, Arizona, and a second near Chicago,
Illinois, with an estimated total capacity of 342,000 tons per year.
Asarco and Cyprus do not consume any of the rod they produce and do not
compete with their customers; all their copper rod capacity is available to
copper wire producers.
67. Phelps Dodge operates two copper rod mills, one in El Paso,
Texas and one in Norwich, Connecticut, with an estimated total capacity of
720,000 tons per year. Phelps Dodge is a major producer of copper wire.
Asarco estimates that Phelps Dodge uses approximately 285,000 tons of its
copper rod capacity internally to produce copper wire, leaving
approximately 435,000 tons per year available for sale to other wire
producers. If Phelps Dodge, Asarco, and Cyprus were to merge, the merged
company would control a total of five copper rod mills in the United
States, with a combined total capacity of 1,316,000 tons per year.
68. Copper wire manufacturers fall into three groups: one group
purchases its requirements of copper rod from producers such as Asarco,
Cyprus, and Phelps Dodge. A second group operates its own copper rod mills
and produces sufficient copper rod to supply their copper wire operations.
A third group produces some of its own copper rod, and purchases the
remainder of its requirements from suppliers such as Asarco, Cyprus, and
Phelps Dodge.
69. Apart from Asarco, Cyprus, and Phelps Dodge, there are only
two companies in the United States that currently supply significant
quantities of copper rod to wire producers. One of those companies,
Southwire, is a large wire producer, and thus a competitor of the customers
it supplies with wire rod. Asarco estimates that Southwire is capable of
producing approximately 200,000 tons per year in excess of the amount
needed to supply its own wire operations. Asarco estimates that Amrod, the
only other company in the United States that produces copper rod for sale
to third parties, is capable of producing about 88,000 tons of copper rod
per year. Thus, the total copper rod available for sale to copper wire
manufacturers, excluding amounts produced by copper wire manufacturers for
internal consumption, is 1,326,000 tons per year.
70. Another producer, BHP, has announced plans to close an
additional rod mill located in San Manuel, Arizona. BHP has no plans to
re-open the mill. BHP made extensive efforts to sell the mill, along with
its other copper mining and refining properties in the United States,
before deciding to shut the properties down and write off its entire
investment in the properties.
71. A combination of Phelps Dodge, Asarco, and Cyprus would have
56.1% of total U.S. copper rod capacity, excluding the BHP mill. If
"captive" copper rod capacity is excluded from the market, a three-way
merger would give Phelps Dodge control of 77.8% of U.S. copper rod
capacity. The remaining two producers would have, respectively, 15.6% of
capacity and 6.6% of capacity.
72. Copper rod oxidizes when exposed to air, and is relatively
fragile compared to other refined copper products. If the surface of the
copper rod is damaged in shipment or becomes oxidized from exposure to air,
it is not suitable for making copper wire. Because of these limitations,
copper rod generally is not transported long distances by ship. Indeed, to
Asarco's knowledge, there are no appreciable imports of copper rod into the
United States except from Canada and Mexico. Thus, the relevant geographic
market is likely to be no broader than Canada, Mexico, and the United
States, the area covered by NAFTA.
73. If the relevant geographic market is the NAFTA area, the
Phelps Dodge proposal raises a serious antitrust issue. In Canada, only
two companies produce copper rod, and only one company, Alcatel, produces
copper rod in excess of its own requirements. Alcatel is estimated to have
the capacity to produce 70,000 tons of copper rod per year in excess of its
own requirements.
74. Assuming the relevant geographic market includes the NAFTA
countries, a combination of Phelps Dodge, Asarco and Cyprus would control
an estimated 44.4% of copper rod capacity, and 66.6% of the total capacity
available for sale to copper wire producers.
75. The competitive problem is made more serious by the fact
that Phelps Dodge is itself a major producer of copper wire, and thus
copper wire producers would be required to buy the essential input for
their operations from a competitor.
76. If Phelps Dodge succeeds in breaking up the merger of Asarco
and Cyprus, it will prevent the formation of a new, efficient, and low-cost
competitor to Phelps Dodge in the production of copper rod. If Phelps
Dodge succeeds in acquiring Asarco and Cyprus, two existing competitors
will be removed from the market.
COUNT THREE
(Reduction of Competition in the Production of Copper Wire)
77. Asarco repeats and realleges the allegations of paragraphs 1
through 76 inclusive of this Complaint, as if fully set forth herein.
78. The effect of the proposed acquisition of Asarco and Cyprus
shares by Phelps Dodge will be to substantially lessen competition in the
business of producing copper wire.
79. Phelps Dodge, unlike Asarco and Cyprus, not only produces
copper cathode and copper rod, but is also integrated forward into the
production of copper wire. Phelps Dodge reports that it manufactures the
world's broadest line of magnet wire, the insulated conductor used in
automobile electrical systems, industrial motors and home appliances.
Phelps Dodge also reports that it manufactures more magnet wire under ISO
quality certification than any producer in the world.
80. If Phelps Dodge acquires Asarco and Cyprus, it will obtain a
very large share of the capacity to produce copper rod for sale to its
competitors in the production of copper wire, and it will deprive competing
wire manufacturers of access to the rod mills currently owned by Asarco and
Cyprus, two companies that do not compete with wire manufacturers. Indeed,
after the acquisition, a scant 6.6% of U.S. copper rod capacity will be in
the hands of producers that do not also manufacture copper wire. Phelps
Dodge will then be in a position to prevent competing wire manufacturers
from gaining access to the essential input for their operations, or to
inhibit their ability to compete in the sale of copper wire by charging an
artificially high price for copper rod, while supplying copper rod at a
lower cost to its own wire operations.
COUNT FOUR
(Tortious Interference with Prospective Contractual Relations)
81. Asarco repeats and realleges the allegations of paragraphs 1
through 50 inclusive of this Complaint, as if fully set forth herein.
82. Phelps Dodge's unfair and improper conduct has interfered
and continues to interfere with the business relationship between Asarco
and Cyprus to the detriment and damage of Asarco, and it threatens
irreparable harm to the reputation, trade and business of Asarco, including
possible loss of the significant financial benefits expected to flow from
the Asarco-Cyprus merger.
83. Asarco has no adequate remedy at law to prevent continued
interference by Phelps Dodge with Asarco's business relations, and
restraint by injunction is necessary to afford Asarco adequate relief.
COUNT FIVE
(Unfair Competition)
84. Asarco repeats and realleges the allegations of paragraphs 1
through 50 inclusive of this Complaint, as if fully set forth herein.
85. By the acts and conduct complained of herein, Phelps Dodge
has acted and continues to act unfairly and in bad faith.
86. Phelps Dodge's unfair conduct has caused, and unless
enjoined by this Court will continue to cause, irreparable harm to the
reputation, trade and business of Asarco, including possible loss of the
significant financial benefits expected to flow from the Asarco-Cyprus
merger.
87. Asarco has no adequate remedy at law to protect itself from
Phelps Dodge's unfair competitive practices, and restraint by injunction is
necessary to afford Asarco adequate relief.
PRAYER FOR RELIEF
WHEREFORE, plaintiff respectfully prays for judgment:
1. Declaring that the proposed acquisition of Asarco and Cyprus
stock by Phelps Dodge violates Section 7 of the Clayton Act;
2. Enjoining during the pendency of this action Phelps Dodge,
its officers, directors, employees and agents, and all other persons acting
on their behalf or in concert with them, from acquiring or attempting to
acquire in any manner any common stock of Asarco or Cyprus;
3. Permanently enjoining Phelps Dodge, its officers, directors,
employees and agents, and all other persons acting on their behalf or in
concert with them, from taking any actions to prevent, delay, or otherwise
impede the merger between Asarco and Cyprus;
4. Granting plaintiff Asarco monetary damages for Phelps
Dodge's tortious interference with the prospective merger between Asarco
and Cyprus;
5. Compensating plaintiff Asarco for attorneys' fees, costs and
disbursements incurred in this action; and
6. Granting plaintiff Asarco such other and further relief as
this Court may deem just and proper.
By: ____________________________
Peter J. Nickles
Robert A. Long, Jr.
Alan A. Pemberton
Salvatore G. Rotella, Jr.
COVINGTON & BURLING
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566
Washington, DC 20044
(202) 662-6000
Jack P. Levin (JL-7625)
HOWARD, SMITH & LEVIN LLP
1330 Avenue of the Americas
New York, NY 10019
(212) 841-1000
September ___, 1999 Attorneys for Plaintiff
EXHIBIT 25
[ASARCO LOGO] NEWS
ASARCO Incorporated
180 Maiden Lane
New York, N.Y. 10038-4991
FOR IMMEDIATE RELEASE
ASARCO SUES PHELPS DODGE SEEKING CLARIFICATION OF ANTITRUST ISSUES
SUIT SEEKS TO CLARIFY FOR SHAREHOLDERS
STATUS OF PHELPS DODGE'S PROPOSAL
UNDER ANTITRUST LAWS
NEW YORK, N.Y., September 20, 1999 -- ASARCO Incorporated
(NYSE: AR) today reported it has filed a complaint in Federal Court in
Manhattan charging Phelps Dodge's unsolicited takeover attempt of Asarco
and Cyprus Amax Minerals Company (NYSE: CYM) violates the U.S. antitrust
laws. According to the complaint, Phelps Dodge's exchange offers are
illegal and appropriate injunctive relief is sought. The lawsuit,
moreover, seeks damages for Phelps Dodge's alleged wrongful interference
with the Asarco Cyprus merger, and for unfair competition. The Asarco
Cyprus merger is scheduled for a vote of each company's shareholders on
September 30th.
Francis R. McAllister, Chairman and Chief Executive Officer of
Asarco, stated, "Phelps Dodge's exchange offer raises serious and
substantial antitrust issues. Both Asarco and Cyprus Amax informed Phelps
Dodge of their concerns about these issues right at the outset. Phelps
Dodge has failed to respond to these issues, except to make unsupported
statements that 'regulatory approvals can be obtained on a timely basis.'
Such vague statements are totally unacceptable when the shareholders of
Asarco and Cyprus Amax are being asked to forgo the value-creating two-way
Asarco Cyprus merger -- which has already received antitrust clearance --
in order to pursue the speculative possibility of a Phelps Dodge
transaction. Accordingly, Asarco has decided to take further action to
protect its shareholders and to stop Phelps Dodge from minimizing and
concealing the antitrust exposure."
"If Phelps Dodge had been sincere in its belief that its proposal
has no antitrust problems, it would have made an early pre-merger
notification under the Hart-Scott-Rodino Act and sought to respond
forthrightly to any questions raised by the Justice Department. That is
what both Asarco and Cyprus Amax did for the Asarco Cyprus merger. Based
on our economic and legal reviews, we are convinced that Phelps Dodge's
proposed three-way combination would create the very sort of market
dominance that the nation's antitrust laws were enacted to prevent. The
proposed Phelps Dodge three-way combination would have an estimated 80% of
U.S. copper mining capacity, 58% of U.S. copper smelting capacity, 69% of
U.S. copper refining capacity, 78% of U.S. commercial copper rod capacity,
and 97% of U.S. SX/EW production capacity. This highly concentrated U.S.
copper market dominance would also give Phelps Dodge the U.S. trading clout
to influence copper premiums to their commercial and pricing advantage."
Mr. McAllister noted, "Asarco and Cyprus initiated their
transaction by signing a legally binding merger agreement. Only after
Asarco and Cyprus signed a merger agreement did Phelps Dodge initiate
action to disrupt the proposed merger including attempting to acquire
either company. Through the launching of a proxy solicitation,
questionable litigation tactics, and misleading public statements, Phelps
Dodge has tried to coerce the directors of Asarco and Cyprus to abandon the
Asarco Cyprus merger. And, in an attempt to intimidate shareholders from
voting for the Asarco Cyprus merger, Phelps Dodge has asserted it will
withdraw its offer if the merger agreement is approved. We believe these
actions interfere with the legal agreement between Asarco and Cyprus."
The complaint charges Phelps Dodge with antitrust violations
including unlawful reductions of competition in the business of mining,
smelting and refining copper, the business of producing copper rod, and the
business of producing copper wire.
###
FOR FURTHER INFORMATION: Jerry W. Cooper (212) 510-1810, (212) 510-1835
(FAX); Donald M. Noyes (212) 510-1813
