<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
PHELPS DODGE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)1 and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $6.25 per share
(including associated preferred share purchase rights)
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
45,439,584
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$56.22 (average of high and low prices of Phelps Dodge Corporation
Common Stock reported on the New York Stock Exchange Composite
Transaction Tape on August 31, 1999).
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$2,554,613,413
------------------------------------------------------------------------
(5) Total fee paid:
$510,923 (offset as described below)
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$635,571
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Form S-4, Registration Statement No. 333-86061 ($404,678); Form S-4,
Registration Statement No. 333-86063 ($230,873)
------------------------------------------------------------------------
(3) Filing Party:
Phelps Dodge Corporation
------------------------------------------------------------------------
(4) Date Filed:
August 27, 1999
------------------------------------------------------------------------
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[PHELPS DODGE CORPORATION LOGO]
September 14, 1999
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders
of Phelps Dodge Corporation, to be held on Wednesday, October 13, 1999, at 10:00
a.m., local time, at The Heard Museum, 2301 North Central Avenue, Phoenix,
Arizona. At the Special Meeting you will be asked to approve:
1. the issuance of up to 17,082,064 shares of Phelps Dodge common
stock in connection with an exchange offer made by Phelps Dodge to the
shareholders of ASARCO Incorporated ("Asarco"); and
2. the issuance of up to 28,357,520 shares of Phelps Dodge common
stock in connection with an exchange offer made by Phelps Dodge to the
shareholders of Cyprus Amax Minerals Company ("Cyprus Amax").
We have proposed a three-way business combination of Phelps Dodge, Asarco
and Cyprus Amax. Pursuant to that proposal, we have offered to exchange all of
the outstanding Asarco common shares for Phelps Dodge common shares at an
exchange ratio of 0.4098 Phelps Dodge common shares for each Asarco common
share. We have separately offered to exchange all of the outstanding Cyprus Amax
common shares for Phelps Dodge common shares at an exchange ratio of 0.3135
Phelps Dodge common shares for each Cyprus Amax common share.
If the Asarco offer is successful, we intend to have Asarco merge with a
Phelps Dodge subsidiary. If the Cyprus Amax offer is successful, we intend to
have Cyprus Amax merge with another Phelps Dodge subsidiary. In each of these
mergers, remaining Asarco and Cyprus Amax shareholders would receive the same
per-share consideration as we are offering in our exchange offers. While our
goal is to combine all three companies, our two offers are separate, and neither
is conditioned on the other.
Approval of each of these stock issuances requires the affirmative vote of
a majority of the votes cast on the matter, provided that the total vote cast on
the proposal represents at least 50% in interest of all Phelps Dodge common
shares entitled to vote on the matter.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT EACH OF THE PROPOSED STOCK
ISSUANCES IS IN THE BEST INTERESTS OF PHELPS DODGE AND ITS SHAREHOLDERS, HAS
UNANIMOUSLY APPROVED THE ISSUANCES, AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
EACH OF THE ISSUANCES.
Detailed information regarding the proposed stock issuances is contained in
the accompanying Proxy Statement. In view of the importance of the actions to be
taken at the Special Meeting, we urge you to read the accompanying Proxy
Statement carefully. Regardless of the number of shares you own, we request that
you complete, sign, date and return the enclosed proxy card promptly in the
accompanying pre-paid envelope. A proxy may be revoked by a signed revocation
letter or by a later dated, properly executed proxy.
<PAGE> 3
You may, of course, attend the Special Meeting and vote in person, even if you
have previously returned your proxy card.
WE URGE YOU TO VOTE FOR APPROVAL OF EACH OF THE PROPOSED STOCK ISSUANCES.
If you should have any questions regarding the proposed stock issuances or our
proposed acquisitions of Asarco and Cyprus Amax, please call our proxy
solicitors, Innisfree M&A Incorporated, toll-free at 1-888-750-5834.
Sincerely,
<TABLE>
<S> <C>
/s/ DOUGLAS C. YEARLEY /s/ J. STEVEN WHISLER
- ------------------------------------------------ ------------------------------------------------
Douglas C. Yearley J. Steven Whisler
Chairman and President and
Chief Executive Officer Chief Operating Officer
</TABLE>
<PAGE> 4
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF PHELPS DODGE CORPORATION:
A special meeting of shareholders of Phelps Dodge Corporation ("Phelps
Dodge or the "Company") will be held at The Heard Museum, 2301 North Central
Avenue, Phoenix, Arizona, on Wednesday, October 13, 1999, at 10:00 a.m., local
time, for the following purposes:
1. To approve the issuance of up to 17,082,064 shares of Phelps Dodge
common stock, par value $6.25 per share, in connection with an exchange
offer made by Phelps Dodge to the shareholders of ASARCO Incorporated;
2. To approve the issuance of up to 28,357,520 shares of Phelps Dodge
common stock, par value $6.25 per share, in connection with an exchange
offer made by Phelps Dodge to the shareholders of Cyprus Amax Minerals
Company; and
3. To transact any other business that may properly be brought before
the Special Meeting.
Only holders of record of Phelps Dodge's common shares at the close of
business on September 13, 1999 will be entitled to vote at the Special Meeting
or at any adjournments of our Special Meeting. On September 13, 1999, we had
58,003,964 common shares outstanding.
If you participate in the ChaseMellon Shareholder Services Investor
Services Program for Phelps Dodge shareholders, administered by The Chase
Manhattan Bank, all common shares held for your account under that service will
be voted in accordance with your proxy.
Proxies are solicited by the Board of Directors. You may revoke your proxy
before it is voted at the Special Meeting by delivering a signed revocation
letter or new proxy, dated later than your first proxy, to Robert C. Swan, Vice
President and Secretary.
Whether or not you expect to attend the meeting, we urge you to date, sign
and complete the enclosed proxy and return it without delay in the enclosed
pre-paid envelope. If you are attending in person and if you have mailed your
proxy card, you may revoke your proxy and vote in person at the meeting.
This Proxy Statement and accompanying materials are first being sent to
shareholders on or about September 14, 1999.
By order of the Board of Directors,
Robert C. Swan
Vice President and Secretary
Phoenix, Arizona
September 14, 1999
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED PRE-PAID ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF
YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 5
PROXY STATEMENT
OF
PHELPS DODGE CORPORATION
FOR THE
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
OCTOBER 13, 1999
This Proxy Statement is being furnished to holders of common stock, par
value $6.25 per share (the "Common Stock"), of Phelps Dodge Corporation ("Phelps
Dodge" or the "Company") in connection with the solicitation of proxies by the
Board of Directors of the Company (the "Board") for use at a special meeting of
Phelps Dodge shareholders to be held at The Heard Museum, 2301 North Central
Avenue, Phoenix, Arizona on October 13, 1999, at 10:00 a.m., local time, and at
any adjournment or postponement thereof (the "Special Meeting"). At the Special
Meeting, you will be asked to consider and vote upon proposals:
1. to approve the issuance of up to 17,082,064 shares of the Company's
Common Stock in connection with an exchange offer (the "Asarco Offer") made
by Phelps Dodge to the shareholders of ASARCO Incorporated ("Asarco"); and
2. to approve the issuance of up to 28,357,520 shares of the Company's
Common Stock in connection with an exchange offer (the "Cyprus Amax Offer")
made by Phelps Dodge to the shareholders of Cyprus Amax Minerals Company
("Cyprus Amax").
Phelps Dodge has proposed a three-way business combination of Phelps Dodge,
Asarco and Cyprus Amax. Pursuant to that proposal, Phelps Dodge has offered to
exchange all of the outstanding Asarco common shares for Phelps Dodge common
shares at an exchange ratio of 0.4098 Phelps Dodge common shares for each Asarco
common share. Phelps Dodge has separately offered to exchange all of the
outstanding Cyprus Amax common shares for Phelps Dodge common shares at an
exchange ratio of 0.3135 Phelps Dodge common shares for each Cyprus Amax common
shares.
If the Asarco Offer is successful, we intend to have Asarco merge with a
Phelps Dodge subsidiary (the "Phelps Dodge/Asarco Merger"). If the Cyprus Amax
Offer is successful, we intend to have Cyprus Amax merge with another Phelps
Dodge subsidiary (The "Phelps Dodge/Cyprus Amax Merger"). In each of these
mergers, remaining Asarco and Cyprus Amax shareholders would receive the same
per-share consideration as we are offering in the Asarco Offer and the Cyprus
Amax Offer, respectively. Although our goal is to combine all three companies,
the Asarco Offer and the Cyprus Amax Offer are separate, and neither is
conditioned on the other.
The number of Phelps Dodge shares the Company is seeking approval to issue
in the Asarco Issuance and the Cyprus Amax Issuance is based on the number of
Asarco and Cyprus Amax shares outstanding plus those reserved for issuance under
certain stock option plans, as reported in the Form S-4 Registration Statement
of Asarco Cyprus Incorporated filed with the Securities and Exchange Commission
(the "SEC") on August 20, 1999.
This Proxy Statement is first being mailed or otherwise delivered to Phelps
Dodge shareholders on or about September 14, 1999. The record date for the
Special Meeting is
2
<PAGE> 6
the close of business on September 13, 1999. The principal executive offices of
the Company are located at 2600 North Central Avenue, Phoenix, Arizona
85004-3014.
If you have any questions about the voting of your shares, the proposed
stock issuances or our proposed acquisitions of Asarco and Cyprus Amax, please
call our proxy solicitors, Innisfree M&A Incorporated, toll-free at
1-888-750-5834.
THE SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE
The Special Meeting will be held on October 13, 1999, at 10:00 a.m., local
time, at The Heard Museum, 2301 North Central Avenue, Phoenix, Arizona. At the
Special Meeting, Phelps Dodge shareholders will be asked to consider and vote
upon proposals to approve (i) the issuance of up to 17,082,064 shares of Common
Stock in connection with the Asarco Offer and the Phelps Dodge/Asarco Merger
(the "Asarco Issuance"); and (ii) the issuance of up to 28,357,520 shares of
Common Stock in connection with the Cyprus Amax Offer and the Phelps
Dodge/Cyprus Amax Merger (the "Cyprus Amax Issuance").
RECORD DATE AND SHARES ENTITLED TO VOTE
Only holders of record of Phelps Dodge Common Stock at the close of
business on September 13, 1999 (the "Record Date") are entitled to notice of and
to vote at the Special Meeting. As of that date, there were 58,003,964 shares of
Phelps Dodge Common Stock issued and outstanding. Holders of record of Phelps
Dodge Common Stock on the Record Date are entitled to one vote per share on any
matter that may properly come before the Special Meeting.
VOTE REQUIRED; SECURITY OWNERSHIP OF MANAGEMENT
The approval of each of Asarco Issuance and the Cyprus Amax Issuance
requires the affirmative vote of a majority of votes cast on the matter,
provided that the total vote cast on the proposal represents at least 50% in
interest of all shares of Common Stock entitled to vote on the proposal.
Abstentions will be counted as present for purposes of determining whether
a quorum is present and will have the effect of a vote against the Asarco
Issuance and the Cyprus Amax Issuance. Broker non-votes will not be counted as
present for quorum purposes. Accordingly, broker non-votes will have the effect
of a vote against the Asarco Issuance and the Cyprus Amax Issuance, unless
holders of more than 50% in interest of all shares of Common Stock entitled to
vote on the proposal (excluding broker non-votes) cast votes, in which case a
broker non-vote will have no effect on the result of the vote.
As of the Record Date, the executive officers and directors of Phelps Dodge
and their affiliates beneficially owned in the aggregate approximately 1.3
million shares of Common Stock, or approximately 2.3% of the Phelps Dodge Common
Stock then outstanding.
All of the executive officers and directors of Phelps Dodge have advised us
that they intend to vote their Phelps Dodge shares to approve the Asarco
Issuance and the Cyprus Amax Issuance.
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<PAGE> 7
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy for the Special Meeting is enclosed with this Proxy
Statement. All shares of Common Stock held of record as of the Record Date
represented by properly executed proxies will, unless such proxies have been
previously revoked, be voted in accordance with the instructions indicated on
such proxies.
The Board is not aware of any other matters which may be presented for
action at the Special Meeting, but if other matters do come properly before the
Special Meeting it is intended that Phelps Dodge common shares represented by
proxies in the accompanying form will be voted by the persons named in the proxy
in accordance with their best judgment.
Any proxy on which no direction is specified will be voted: (a) FOR the
Asarco Issuance; (b) FOR the Cyprus Amax Issuance; and (c) in the discretion of
the proxyholders as to any other matter which may properly come before the
Special Meeting.
A shareholder may revoke a proxy by: (a) delivering to the Company written
notice of revocation, (b) delivering to the Company a proxy signed on a later
date or (c) appearing at the Special Meeting and voting in person. The cost of
soliciting proxies from stockholders will be borne by Phelps Dodge. Proxies may
be solicited by personal interview, mail and telephone by certain of our
executive officers, directors and regular employees, without additional
compensation. In addition, we may reimburse brokerage firms and other persons
representing beneficial owners of Phelps Dodge shares for their expenses in
forwarding solicitation material to beneficial owners.
Phelps Dodge has retained Innisfree M&A Incorporated ("Innisfree") to
assist and to provide advisory services in connection with this Proxy Statement
for which Innisfree will receive a fee of $10,000 and will be reimbursed for
reasonable out-of-pocket expenses. Phelps Dodge will indemnify Innisfree against
certain liabilities and expenses in connection with the proxy solicitation,
including liabilities under the federal securities laws.
DISSENTERS' RIGHTS
Under the New York Business Corporation Law, shareholders who dissent with
respect to any matters to be acted upon pursuant to this Proxy Statement will
not have any rights of appraisal or similar rights.
THE PROPOSED ACQUISITIONS
We have proposed a three-way business combination of Phelps Dodge, Asarco
and Cyprus Amax. Because the management and Boards of Directors of Asarco and
Cyprus Amax have been unwilling to negotiate a combination transaction with us,
we have made exchange offers directly to the shareholders of Asarco and of
Cyprus Amax. We are offering to exchange all of the outstanding Asarco common
shares for Phelps Dodge common shares at an exchange ratio of 0.4098 Phelps
Dodge common shares for each Asarco common share. We are also separately
offering to exchange all of the outstanding Cyprus Amax common shares for Phelps
Dodge common shares at an exchange ratio of 0.3135 Phelps Dodge common shares
for each Cyprus Amax common share.
On July 15, 1999, Asarco and Cyprus Amax announced that they had entered
into an agreement (the "Asarco/Cyprus Amax Merger Agreement") to combine their
businesses. However, we believe that our proposed three-way business combination
would be more favorable to the shareholders of all three companies.
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<PAGE> 8
We would prefer to combine all three companies. However, the Asarco Offer
is not conditioned on the success of the Cyprus Amax Offer, nor is the Cyprus
Amax Offer conditioned on the success of the Asarco Offer.
If we obtain all of the shares of Asarco pursuant to the Asarco Offer and
all of the shares of Cyprus Amax pursuant to the Cyprus Amax Offer, former
shareholders in Asarco and Cyprus Amax would own approximately 16% and 28%,
respectively, of the Common Stock of Phelps Dodge, based upon the number of
shares outstanding of Phelps Dodge, Cyprus Amax and Asarco on August 13, 1999,
August 3, 1999 and July 31, 1999, respectively. Because each share of Phelps
Dodge common stock is entitled to one vote, the voting rights of existing Phelps
Dodge common stockholders will be diluted in the same proportion.
5
<PAGE> 9
PROPOSAL 1:
ISSUANCE OF COMMON STOCK
IN CONNECTION WITH THE ASARCO OFFER
GENERAL
Upon the approval of the Asarco Issuance by Phelps Dodge's shareholders,
the Company proposes to issue up to 17,082,064 shares of Common Stock pursuant
to the Asarco Offer. If the Asarco Offer is successful, the Company intends to
cause Asarco to merge with a subsidiary of the Company. In the Phelps
Dodge/Asarco Merger, remaining Asarco shareholders would receive the same
per-share consideration as we are offering in the Asarco Offer.
DESCRIPTION OF ASARCO
ASARCO Incorporated
180 Maiden Lane
New York, NY 10038
(212) 510-2000
ASARCO Incorporated, a New Jersey corporation organized in 1899, is one of
the world's leading producers of copper. Asarco also produces specialty
chemicals and aggregates. Asarco's copper business includes integrated mining,
smelting and refining operations in North America and in Peru through its 54.3%
owned subsidiary, Southern Peru Copper Corporation. Enthone-OMI, Inc., a wholly
owned subsidiary, operates a worldwide specialty chemicals business focused on
functional and decorative coatings for the electronics and metal finishing
industries. American Limestone Company, a wholly owned subsidiary, produces
construction aggregates, ready-mixed concrete and agricultural limestone. Asarco
also operates a custom lead smelting business, a zinc mining business and a
specialty metals business. Asarco owns Encycle, Inc., which operates a waste
recycling facility and Hydrometrics, an environmental consulting and
construction firm. As of June 30, 1999, Asarco and its subsidiaries employed
approximately 10,100 employees.
DESCRIPTION OF THE ASARCO OFFER
Phelps Dodge has offered, upon the terms and subject to the conditions set
forth in a prospectus dated September 2, 1999 (the "Asarco Prospectus") and in a
related letter of transmittal, to exchange 0.4098 shares of Phelps Dodge Common
Stock for each outstanding share of common stock of Asarco that is validly
tendered on or prior to the expiration date for the Asarco Offer and not
properly withdrawn. The Asarco Offer is also an offer to acquire Asarco
preferred share purchase rights (the "Asarco Rights") issued under Asarco's
shareholder rights plan (the "Asarco Rights Agreement"), and when we refer to
the shares of Asarco common stock, we are also referring to the associated
rights, unless we indicate otherwise.
Phelps Dodge is making the Asarco Offer through its wholly owned
subsidiary, AAV Corporation, which is a Delaware corporation.
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<PAGE> 10
CONDITIONS TO THE ASARCO OFFER
Phelps Dodge's obligation to exchange Phelps Dodge Common Stock for Asarco
common stock pursuant to the Asarco Offer is conditioned upon the satisfaction
or, where applicable, waiver of the following conditions:
MINIMUM TENDER CONDITION
There must be validly tendered, prior to the expiration of the Asarco
Offer, and not withdrawn, a number of Asarco shares which will constitute at
least a majority of the total number of outstanding Asarco shares on a fully
diluted basis (as though all options or other securities convertible into or
exercisable or exchangeable for Asarco shares had been so converted, exercised
or exchanged) as of the date that the Company accepts the Asarco shares for
exchange pursuant to the Asarco Offer.
RIGHTS PLAN CONDITION
This condition would be satisfied if the Board of Directors of Asarco
redeems the Asarco Rights or amends the Asarco Rights Agreement so that the
Asarco Rights would not be triggered by the Asarco Offer and the Phelps
Dodge/Asarco Merger, or a court of competent jurisdiction invalidates the Asarco
Rights Agreement.
TAKEOVER DEFENSE CONDITION
This condition would be satisfied if either (a) the terms of Article 7 of
the Asarco Restated Certificate of Incorporation, which could require a vote of
the holders of 80% of the Asarco shares in connection with the Phelps
Dodge/Asarco Merger, are satisfied or rendered inapplicable to the Phelps
Dodge/Asarco Merger or (b) we acquire 80% or more of the outstanding shares
entitled to vote on the Phelps Dodge/Asarco Merger.
PHELPS DODGE STOCKHOLDER APPROVAL CONDITION
Pursuant to the rules of the New York Stock Exchange (the "NYSE"), on which
our Common Stock is listed, the issuance of Common Stock pursuant to the Asarco
Offer and the Phelps Dodge/Asarco Merger must be approved by a majority of the
votes cast at a meeting at which the total number of votes cast represents over
50% in interest of all shares of Common Stock entitled to vote on the proposal,
because the number of shares of Common Stock to be issued will be equal to or in
excess of 20% of the shares outstanding prior to such issuance.
HSR CONDITION
The Asarco Offer is conditioned upon the waiting period (and any extension
thereof) applicable to the offer under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), having expired or been
terminated.
OTHER CONDITIONS OF THE ASARCO OFFER
In addition to the conditions described above, Phelps Dodge's obligation to
issue Common Stock in exchange for Asarco common shares is subject to the
following conditions:
(a) The shares of Common Stock which shall be issued to Asarco
stockholders in the Asarco Offer and the Phelps Dodge/Asarco Merger have
been authorized for listing on the NYSE, subject to official notice of
issuance;
(b) The Registration Statement relating to the Common Stock to be
issued in the Asarco Offer shall have become effective under the Securities
Act of 1933, as amended (the "Securities Act"), and no stop order
suspending the effectiveness of the
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Registration Statement shall have been issued nor shall there have been
proceedings for that purpose initiated or threatened by the SEC and the
Company shall have received all necessary state securities law or "blue
sky" authorizations;
(c) No temporary restraining order, preliminary or permanent
injunction or other order or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Asarco Offer or any of the other transactions
contemplated by the Asarco Prospectus shall be in effect; no statute, rule,
regulation, order, injunction or decree shall have been enacted, entered,
promulgated or enforced by any court, administrative agency or commission
or other governmental authority or instrumentality which prohibits,
restricts or makes illegal the consummation of the Asarco Offer; nor shall
there have been a failure to obtain any required consent or approval under
foreign laws or regulations which would prohibit the consummation of the
Asarco Offer or would have a material adverse effect on Phelps Dodge or on
Asarco;
(d) There shall not be pending any suit, action or proceeding by any
governmental entity (i) challenging the Asarco Offer, seeking to restrain
or prohibit the consummation of the Asarco Offer or seeking to obtain from
Asarco or Phelps Dodge any damages that are material in relation to Asarco
and its subsidiaries taken as a whole, (ii) seeking to prohibit or limit
the ownership or operation by Asarco or Phelps Dodge or any of Phelps
Dodge's subsidiaries of any material portion of the business or assets of
Asarco or us or any of Phelps Dodge's subsidiaries or to compel Asarco or
Phelps Dodge or any of Phelps Dodge's subsidiaries, to dispose of or hold
separate any material portion of the business or assets of Asarco or Phelps
Dodge or of any of Phelps Dodge's subsidiaries, as a result of the Asarco
Offer, (iii) seeking to prohibit Phelps Dodge from effectively controlling
in any material respect the business or operations of Asarco or (iv) which
otherwise is reasonably likely to have a material adverse effect on Phelps
Dodge or Asarco;
(e) Asarco stockholders have voted to reject the Asarco/Cyprus Amax
merger, or the Asarco/Cyprus Amax Merger Agreement has otherwise been
terminated;
(f) Phelps Dodge receives the opinion of Shearman & Sterling as to
certain tax matters;
(g) Phelps Dodge shall be satisfied that the anti-takeover provisions
of Sections 14A:10A-4 and -5 of the New Jersey Business Corporation Act
(the "NJBCA"), relating to business combinations with "interested
stockholders," are inapplicable to Phelps Dodge, the Asarco Offer and the
Phelps Dodge/Asarco merger (based on publicly available information, we
currently believe those provisions would not be applicable); and
(h) The representations and warranties of Asarco in the Asarco/Cyprus
Amax Merger Agreement are true and correct (without giving effect to any
qualification as to "materiality" or "Material Adverse Effect" set forth
therein) as of the date of the Asarco Prospectus and as of the expiration
date for the Asarco Offer as though made on and as of the date of the
Asarco Prospectus and such expiration date except where the failure of such
representations and warranties to be so true and correct would not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect (as defined therein) on Asarco.
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DESCRIPTION OF THE ASARCO MERGER
In the Phelps Dodge/Asarco Merger, each then outstanding Asarco share
(except for Asarco shares held in Asarco's treasury and Asarco shares that
Phelps Dodge or one of its subsidiaries owns) would be converted into the right
to receive the same per-share consideration as is received by Asarco
shareholders pursuant to the Asarco Offer.
The Phelps Dodge/Asarco Merger may be consummated pursuant to Section
14A:10-5.1 of the NJBCA. Under Section 14A:10-5.1 of the NJBCA, a parent
corporation owning at least 90% of the outstanding shares of each class of a
subsidiary corporation may merge the subsidiary corporation into itself without
the approval of the stockholders of the parent corporation or of the board of
directors or stockholders of the subsidiary corporation. Assuming the Minimum
Tender Condition and the Takeover Defense Condition are satisfied and Phelps
Dodge consummates the Asarco Offer, Phelps Dodge would have sufficient voting
power to effect the Phelps Dodge/Asarco Merger under Section 14A:10-3 of the
NJBCA without the vote of any other stockholder of Asarco.
RECOMMENDATION OF THE BOARD
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE ASARCO ISSUANCE IS IN THE
BEST INTERESTS OF PHELPS DODGE AND ITS SHAREHOLDERS, HAS UNANIMOUSLY APPROVED
THE ASARCO ISSUANCE AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE ASARCO
ISSUANCE.
PROPOSAL 2:
ISSUANCE OF COMMON STOCK
IN CONNECTION WITH THE CYPRUS AMAX OFFER
GENERAL
Upon the approval of the Cyprus Amax Issuance by Phelps Dodge's
shareholders, the Company proposes to issue up to 28,357,520 shares of Common
Stock pursuant to the Cyprus Amax Offer. If the Cyprus Amax Offer is successful,
the Company intends to cause Cyprus Amax to merge with a subsidiary of the
Company. In the Phelps Dodge/ Cyprus Amax Merger, remaining Cyprus Amax
shareholders would receive the same per-share consideration as we are offering
in the Cyprus Amax Offer.
DESCRIPTION OF CYPRUS AMAX
Cyprus Amax Minerals Company
9100 East Mineral Circle
Englewood, CO 80112
(303) 643-5000
Cyprus Amax Minerals Company, a Delaware corporation, is a major mining
company engaged, directly or through its subsidiaries and affiliates, in the
exploration for and extraction, processing, and marketing of mineral resources.
Cyprus Amax is a leading copper producer, the world's largest producer of
molybdenum and has a significant position in gold via its 30% interest in
Kinross Gold Corporation. Cyprus Amax sold certain eastern and midwestern U.S.
coal operations in June of 1998 and sold its lithium business in October of
1998. Cyprus Amax sold its remaining U.S. coal operations in June 1999. Cyprus
Amax still holds its Australian coal properties. As of June 30, 1999, Cyprus
Amax and its subsidiaries employed approximately 4,600 employees.
9
<PAGE> 13
DESCRIPTION OF THE CYPRUS AMAX OFFER
Phelps Dodge has offered, upon the terms and subject to the conditions set
forth in a prospectus dated September 2, 1999 (the "Cyprus Amax Prospectus") and
in a related letter of transmittal, to exchange 0.3135 shares of Phelps Dodge
Common Stock for each outstanding share of common stock of Cyprus Amax that is
validly tendered on or prior to the expiration date for the Cyprus Amax Offer
and not properly withdrawn. Our Cyprus Amax Offer is also an offer to acquire
Cyprus Amax preferred share purchase rights (the "Cyprus Amax Rights") issued
under Cyprus Amax's shareholder rights plan (the "Asarco Rights Agreement"), and
when we refer to the shares of Cyprus Amax common stock, we are also referring
to the associated rights, unless we indicate otherwise.
Phelps Dodge is making the Cyprus Amax Offer through its wholly owned
subsidiary, CAV Corporation, which is a Delaware corporation.
CONDITIONS TO THE CYPRUS AMAX OFFER
Phelps Dodge's obligation to exchange Phelps Dodge Common Stock for Cyprus
Amax common stock pursuant to the Cyprus Amax Offer is conditioned upon the
satisfaction or, where applicable, waiver of the following conditions:
MINIMUM TENDER CONDITION
There must be validly tendered, prior to the expiration of the Cyprus Amax
offer, and not withdrawn, a number of Cyprus Amax shares which will constitute
at least a majority of the total number of outstanding Cyprus Amax shares on a
fully diluted basis (as though all options or other securities convertible into
or exercisable or exchangeable for Cyprus Amax shares had been so converted,
exercised or exchanged) as of the date that the Company accepts the Cyprus Amax
shares for exchange pursuant to the Cyprus Amax Offer.
RIGHTS PLAN CONDITION
This condition would be satisfied if the Board of Directors of Cyprus Amax
redeems the Cyprus Amax Rights or amends the Cyprus Amax Rights Agreement so
that the Cyprus Amax Rights would not be triggered by the Cyprus Amax Offer and
the Phelps Dodge/Cyprus Amax Merger, or a court of competent jurisdiction
invalidates the Cyprus Amax Rights Agreement.
DGCL 203 CONDITION
This condition would be satisfied if either: (a) the board of directors of
Cyprus Amax approves the offer for purposes of Section 203 of the Delaware
General Corporation Law (the "DGCL") or (b) the Company acquires 85% or more of
the voting stock of Cyprus Amax pursuant to the Cyprus Amax Offer. Section 203
of the DGCL, in general, prohibits a Delaware corporation such as Cyprus Amax
from engaging in a "business combination" (as defined in Section 203) with an
"interested stockholder" (as defined in Section 203) for a period of three years
following the date that such person became an interested stockholder unless (a)
prior to the date that such person became an interested stockholder, the board
of directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder,
(b) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding stock held by directors who are also officers
of the corporation and employee stock plans that do not provide employees with
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer, (c) the business combination is
10
<PAGE> 14
proposed prior to the consummation or abandonment of and subsequent to the
public announcement of a proposed transaction which (i) constitutes a merger or
consolidation of the corporation, (ii) is with or by a person who either was not
an interested stockholder during the previous three years or who became an
interested stockholder with the approval of the corporation's board of directors
or during the period described in Section 203(b)(7) of the DGCL and (iii) is
approved or not opposed by a majority of the board of directors then in office
who were directors prior to any person becoming an interested stockholder during
the previous three years, or (d) on or subsequent to the date such person became
an interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders, and
not by written consent, by the affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder.
FAIR PRICE CONDITION
This condition, which would limit the ability of Phelps Dodge to enter into
the Phelps Dodge/Cyprus Amax Merger if the Cyprus Amax Offer is consummated,
would be satisfied if either (a) the Board of Directors of Cyprus Amax approves
the Phelps Dodge/ Cyprus Amax Merger for purposes of Article Sixth of the Cyprus
Amax Restated Certificate of Incorporation or (b) Phelps Dodge acquires 75% or
more of the outstanding voting stock of Cyprus Amax.
PHELPS DODGE STOCKHOLDER APPROVAL CONDITION
Pursuant to the rules of the NYSE, the issuance of Common Stock pursuant to
the Cyprus Amax Offer and the Phelps Dodge/Cyprus Amax Merger must be approved
by a majority of the votes cast at a meeting at which the total number of votes
cast represents over 50% in interest of all shares of Common Stock entitled to
vote on the proposal, because the number of shares of Common Stock to be issued
will be equal to or in excess of 20% of the shares outstanding prior to such
issuance.
HSR CONDITION
The Cyprus Amax Offer is conditioned upon the waiting period (and any
extension thereof) applicable to the offer under the HSR Act having expired or
been terminated.
OTHER CONDITIONS OF THE CYPRUS AMAX OFFER
In addition to the conditions described above, Phelps Dodge's obligation to
issue Common Stock in exchange for Cyprus Amax common shares is subject to the
following conditions:
(a) The shares of Common Stock which shall be issued to Cyprus Amax
stockholders in the Cyprus Amax Offer and the Phelps Dodge/Cyprus Amax
Merger have been authorized for listing on the NYSE, subject to official
notice of issuance;
(b) The Registration Statement relating to the Common Stock to be
issued in the Cyprus Amax Offer shall have become effective under the
Securities Act, and no stop order suspending the effectiveness of the
Registration Statement shall have been issued nor shall there have been
proceedings for that purpose initiated or threatened by the SEC and the
Company shall have received all necessary state securities law or "blue
sky" authorizations;
(c) No temporary restraining order, preliminary or permanent
injunction or other order or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Cyprus Amax Offer or any of the other transactions
contemplated by the Cyprus Amax Prospectus shall be
11
<PAGE> 15
in effect; no statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any court,
administrative agency or commission or other governmental authority or
instrumentality which prohibits, restricts or makes illegal the
consummation of the Cyprus Amax Offer; nor shall there have been a failure
to obtain any required consent or approval under foreign laws or
regulations which would prohibit the consummation of the Cyprus Amax Offer
or would have a material adverse effect on Phelps Dodge or on Cyprus Amax;
(d) There shall not be pending any suit, action or proceeding by any
governmental entity (i) challenging the offer, seeking to restrain or
prohibit the consummation of the offer or seeking to obtain from Cyprus
Amax or Phelps Dodge any damages that are material in relation to Cyprus
Amax and its subsidiaries taken as a whole, (ii) seeking to prohibit or
limit the ownership or operation by Cyprus Amax or Phelps Dodge or any of
Phelps Dodge's subsidiaries of any material portion of the business or
assets of Cyprus Amax or Phelps Dodge or any of Phelps Dodge's subsidiaries
or to compel Cyprus Amax or Phelps Dodge or any of Phelps Dodge's
subsidiaries, to dispose of or hold separate any material portion of the
business or assets of Cyprus Amax or Phelps Dodge or any of Phelps Dodge's
subsidiaries, as a result of the Cyprus Amax Offer, (iii) seeking to
prohibit Phelps Dodge from effectively controlling in any material respect
the business or operations of Cyprus Amax or (iv) which otherwise is
reasonably likely to have a material adverse effect on Phelps Dodge or
Cyprus Amax;
(e) Cyprus Amax stockholders have voted to reject the Asarco/Cyprus
Amax merger, or the Asarco/Cyprus Amax Merger Agreement is otherwise
terminated; and
(f) Phelps Dodge receives the opinion of Shearman & Sterling as to
certain tax matter;
(g) The representations and warranties of Cyprus Amax in the
Asarco/Cyprus Amax Merger Agreement shall be true and correct (without
giving effect to any qualification as to "materiality" or "Material Adverse
Effect" set forth therein) as of the date of the Cyprus Amax Prospectus and
as of the expiration date for the Cyprus Amax Offer as though made on and
as of the date of the Cyprus Amax Prospectus and such expiration date
except where the failure of such representations and warranties to be so
true and correct would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect (as defined therein) on Cyprus
Amax.
DESCRIPTION OF THE CYPRUS AMAX MERGER
In the Phelps Dodge/Cyprus Amax Merger, each then outstanding Cyprus Amax
share (except for Cyprus Amax shares held in Cyprus Amax's treasury and Cyprus
Amax shares that Phelps Dodge or one of its subsidiaries owns) would be
converted into the right to receive the same per-share consideration as is
received by Cyprus Amax shareholders pursuant to the Cyprus Amax Offer.
The Phelps Dodge/Cyprus Amax Merger may be consummated pursuant to Section
253 of the DGCL. Under Section 253 of the DGCL, a parent corporation owning at
least 90% of the outstanding shares of each class of a subsidiary corporation
may merge the subsidiary corporation into itself without the approval of the
stockholders of the parent corporation or of the board of directors or
stockholders of the subsidiary corporation. Assuming the Minimum Tender
Condition is satisfied and Phelps Dodge consummates the
12
<PAGE> 16
Cyprus Amax Offer, Phelps Dodge would have sufficient voting power to effect the
Phelps Dodge/Cyprus Amax Merger under Section 251 of the DGCL without the vote
of any other stockholder of Cyprus Amax.
RECOMMENDATION OF THE BOARD
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE CYPRUS AMAX ISSUANCE IS IN
THE BEST INTERESTS OF PHELPS DODGE AND ITS SHAREHOLDERS, HAS UNANIMOUSLY
APPROVED THE CYPRUS AMAX ISSUANCE AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE CYPRUS AMAX ISSUANCE.
REASONS FOR THE PROPOSED ACQUISITIONS
We believe the combination of Phelps Dodge, Asarco and Cyprus Amax
represents a unique opportunity to create a large, resource-rich portfolio of
lower-cost global copper assets with enhanced flexibility to excel through
business cycles. We believe that the combination of Phelps Dodge, Asarco and
Cyprus Amax will produce the following valuable benefits:
- Ability to integrate operations. We expect the combined company to have
significantly greater ability to integrate southwest U.S. mining
operations, administrative functions in the U.S., Chile and Peru, and
worldwide exploration and development activities. Following the
combination, we would expect to operate all properties in accordance with
Phelps Dodge's disciplined management approach. This means that each
property would be run on a basis intended to earn in excess of the cost
of capital over the full copper price cycle. Following the three-way
combination, the Company will have a broader portfolio of mining
properties than the Asarco-Cyprus Amax combination, and will therefore be
able to better manage costs and eliminate duplicative exploration and
development expenditures.
- Accretion to cash flow. The combination would result in immediate and
substantial accretion to the cash flow per share of the combined company.
- Accretion to earnings. We expect the combination to result in significant
accretion to earnings per share of the combined company in the second
year, assuming copper prices of $0.80 to $0.85 per pound.
- Superior production capability. The total annual worldwide copper
production of the combined company would be approximately 3.8 billion
pounds at current levels, with total attributable copper reserves of
approximately 80 billion recoverable pounds.
- Substantial cost savings. We expect the combined company to achieve
annual cash cost savings of at least $200 million by the end of the
second year after closing, as a result of reductions in overhead,
purchasing, exploration and other expenses. We also expect at least
another $65 million in annual savings from reduced depreciation expenses,
bringing the total annual savings to at least $265 million. These cost
savings are based on public information and our expectation that we can
deliver at least $75 million in incremental savings above the cash
synergy figure of $125 million projected in the proposed Asarco-Cyprus
Amax merger. This does not include any cost savings from the
rationalization of high-cost production during periods of low copper
prices.
13
<PAGE> 17
Based on public information and Phelps Dodge experience, Phelps Dodge
expects to achieve the following annual savings:
<TABLE>
<CAPTION>
($ IN MILLIONS)
<S> <C>
SG&A Expenses........................................ $ 85
Exploration Savings.................................. 55
Operating Synergies
Reduce Supply Costs............................. 28
Reduce Electric Power Costs..................... 12
Optimize Copper Refining Operations............. 7
Optimize Mill/Leach Mix......................... 7
Integrate Arizona Management
Support Services.............................. 6
----
Total Operating Synergies.................. $ 60
Total Cash Cost Savings.............................. $200
</TABLE>
Phelps Dodge's anticipated depreciation savings of $65 million per year
was calculated as follows:
Asset Writedown
<TABLE>
<CAPTION>
PD DEAL
.4098/.3135 ER
--------------
<S> <C>
Purchase Price....................................... $2,620.8
Asarco Book.......................................... 1,458.5
Cyprus Book.......................................... 1,821.0
--------
Asset Writedown...................................... -$ 658.7
Life................................................. 10.0
Implied Depreciation................................. $ 65.9
========
</TABLE>
- Management strength. The combined company would have a strong and deep
management team, at both the operating and corporate levels, with strong
credibility in the marketplace. Phelps Dodge's management team would have
the opportunity to implement value-based portfolio management. We believe
that Phelps Dodge's management team has the credibility to make the tough
decisions necessary to integrate all three businesses rapidly and to
build sustainable long-term shareholder value.
- Portfolio of world-class copper mines. The combined company would have a
core portfolio of world-class copper mines, including Morenci, Southern
Peru Copper Corporation, El Abra, Cerro Verde and Candelaria. This core
portfolio would represent more than 50% of the combined company's current
annual production. At current levels, these properties would produce
approximately 2 billion pounds of copper annually, at an average cash
cost of less than $0.50 per pound.
- Operating leverage. The combined company would have tremendous operating
leverage, together with enough diversity in other businesses to mitigate
cyclical downturns.
- Increased competitiveness. The combined company would have increased
ability to compete for world-class projects.
- Reduced capital expenditures. By combining their businesses, Phelps
Dodge, Asarco and Cyprus Amax would be able to reduce capital
expenditures significantly.
- Financial strength. The combined company would have a strong, liquid
balance sheet, with excellent access to capital. The company's financial
strength would give it the ability to create a world-class portfolio of
cost-competitive mining assets.
14
<PAGE> 18
We believe these factors will provide superior value creation
opportunities, on an ongoing basis, for the shareholders of all three companies.
While we would expect to maximize the benefits outlined above in a three-way
combination involving Phelps Dodge, Asarco and Cyprus Amax, we believe similar
benefits, though on a smaller scale, would result from a two-way combination
with either Asarco or Cyprus Amax.
RELATIONSHIPS WITH ASARCO AND CYPRUS AMAX
Except as described in this Proxy Statement, neither Phelps Dodge nor, to
the best of our knowledge, any of Phelps Dodge's directors, executive officers
or other affiliates has any contract, arrangement, understanding or relationship
with any other person with respect to any securities of Asarco or Cyprus Amax,
including, but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or the voting of any such securities, joint
ventures, loan or option arrangements, puts or calls, guaranties of loans,
guaranties against loss or the giving or withholding of proxies.
Except as described in this Proxy Statement, there have been no contacts,
negotiations or transactions since January 1, 1996, between Phelps Dodge or, to
the best of our knowledge, any of its directors, executive officers or other
affiliates, on the one hand, and Asarco or Cyprus Amax or their respective
affiliates, on the other hand, concerning a merger, consolidation or
acquisition, a tender offer or other acquisition of securities, an election of
directors, or a sale or other transfer of a material amount of assets. Except as
described in this Proxy Statement, neither Phelps Dodge, nor, to the best of our
knowledge, any of its directors, executive officers or other affiliates, has
since January 1, 1996 had any transaction with Asarco or Cyprus Amax or any of
their respective executive officers, directors or affiliates that would require
disclosure under the rules and regulations of the SEC applicable to the Asarco
Offer or the Cyprus Amax Offer.
As of September 13, 1999, Phelps Dodge was the beneficial owner of an
aggregate of 100 shares of Asarco common stock, representing less than 1% of the
shares reported by Asarco to be outstanding. The date of the shares purchased
and the average price paid is set forth below.
<TABLE>
<CAPTION>
DATE OF PURCHASE NO. OF SHARES PRICE PER SHARE
---------------- ------------- ---------------
<S> <C> <C>
August 12, 1999 100 $18.875
</TABLE>
As of September 13, 1999, Phelps Dodge was the beneficial owner of an
aggregate of 100 shares of Cyprus Amax common stock, representing less than 1%
of the shares reported by Cyprus Amax to be outstanding. The date of the shares
purchased and the average price paid is set forth below.
<TABLE>
<CAPTION>
DATE OF PURCHASE NO. OF SHARES PRICE PER SHARE
---------------- ------------- ---------------
<S> <C> <C>
August 12, 1999 100 $14.25
</TABLE>
Except as disclosed in this Proxy Statement, none of Phelps Dodge or, to
the best knowledge of Phelps Dodge, any of Phelps Dodge's directors and
executive officers owns any securities of Asarco or Cyprus Amax or any of their
respective subsidiaries, beneficially or of record, has purchased or sold any of
such securities within the past two years or is or was within the past year a
party to any contract, arrangement or understanding with any person with respect
to any such securities. Except as disclosed in this Proxy Statement, to the best
knowledge of Phelps Dodge, such directors and executive officers, none of their
associates beneficially owns, directly or indirectly, any securities of Asarco
or Cyprus Amax.
15
<PAGE> 19
Pursuant to a letter agreement dated August 16, 1999 (the "Letter
Agreement"), Morgan Stanley & Co. Incorporated ("Morgan Stanley") is providing
certain financial advisory services to Phelps Dodge in connection with our
offer. Under the terms of the Letter Agreement, Phelps Dodge has agreed to pay
Morgan Stanley for its financial advisory services, including its services as
Dealer Manager in connection with our offer, a financial advisory fee of (i)
$11.0 million per acquired company if Phelps Dodge acquires control, as defined
in the Letter Agreement, of Asarco or Cyprus Amax, with certain amounts payable
upon the announcement of defined events, and (ii) an additional $2.0 million if
Phelps Dodge acquires either Asarco or Cyprus Amax within two years of acquiring
the other. Phelps Dodge has also agreed to reimburse Morgan Stanley for its
out-of-pocket expenses, including the fees and expenses of its legal counsel
incurred in connection with this engagement, and has agreed to indemnify each of
Morgan Stanley and certain related persons and entities against certain
liabilities and expenses in connection with Morgan Stanley's engagement,
including certain liabilities under federal securities laws. In addition to the
fees to be received by Morgan Stanley in connection with its engagement as
financial advisor to Phelps Dodge, Morgan Stanley has in the past rendered
various investment banking and financial advisory services for Phelps Dodge for
which it has received customary compensation. In the ordinary course of its
business, Morgan Stanley engages in securities trading and brokerage activities
and may trade or otherwise effect transactions in debt or equity securities or
senior loans of Asarco or Cyprus Amax for its own account and the accounts of
its customers and, accordingly, may at any time hold a long or short position in
such securities or senior loans. As of August 25, 1999, Morgan Stanley held a
net short position of 19,972 common shares of Cyprus Amax and a net long
position of 42,618 common shares of Asarco.
Except as disclosed in this Proxy Statement, none of Phelps Dodge, its
directors, officers, employees or other representatives named in Schedule A or,
to the best of Phelps Dodge's knowledge, its associates has any arrangement of
understanding with any person (1) with respect to any future employment by
Asarco or Cyprus Amax or their respective affiliates or (2) with respect to
future transactions to which Asarco or Cyprus Amax or any of their respective
affiliates will or may be a party, other than sales of products and services in
the ordinary course of business.
Phelps Dodge Overseas Capital Corporation, a wholly owned subsidiary of
Phelps Dodge, and Asarco are among the parties to an agreement among
stockholders, dated as of January 2, 1996, regarding their respective
stockholdings in Southern Peru Copper Corporation. The agreement gives each
party the right to nominate a number of SPCC directors in proportion with the
party's stock ownership, and requires each party to vote its stock to elect
those directors.
From 1995 through 1998, Phelps Dodge Sales Company Incorporated, a wholly
owned subsidiary of Phelps Dodge, was party to a contract with SPCC to purchase
4,800 metric tons of copper from 1995-1997 and 2,400 metric tons of copper in
1998 for $14,095,465 in 1995, $10,993,828 in 1996, $10,925,043 in 1997 and
$3,966,730 in 1998.
Shares of Apache Nitrogen Products, Inc. are held 49.2% by Phelps Dodge,
and 11.42% by Cyprus Miami Corporation and 0.66% by Cyprus Mines Corporation,
both subsidiaries of Cyprus Amax. Apache Nitrogen has contracts with several
affiliates of Cyprus Amax, including the shareholders of Apache Nitrogen and
Cyprus Sierrita Corporation, Cyprus Bagdad Copper Corporation, Cyprus Tohono
Corporation and Cyprus Mineral Park Corporation, for the sale of ANFO, an
explosive mixture. Sales to Phelps Dodge annually range from $16-17 million, and
sales to Cyprus Amax annually range from $6-8 million.
16
<PAGE> 20
BACKGROUND OF THE TRANSACTIONS
In the autumn of 1996, Douglas C. Yearley, Chairman and CEO of Phelps
Dodge, had an informal conversation with Richard de J. Osborne, then Chairman,
Chief Executive Officer and President of Asarco, regarding a possible
combination of the two companies. Mr. Osborne declined to hold discussions on
this subject.
On July 15, 1999, Asarco and Cyprus Amax announced that they had agreed to
combine their companies into a new company to be called "Asarco Cyprus
Incorporated." According to the press release issued by Asarco and Cyprus Amax,
Cyprus Amax shareholders would receive 0.765 shares of the combined company for
each of their Cyprus Amax shares, while Asarco shareholders would receive one
share of the combined company for each of their Asarco shares. The combined
company would have an initial dividend rate of $0.05 per share per quarter. The
transaction was approved by the Boards of Directors of Asarco and Cyprus Amax,
but remains subject to regulatory approvals and shareholder approvals.
On August 10, 1999, Mr. Yearley telephoned Milton H. Ward, Cyprus Amax's
Chairman, Chief Executive Officer and President, and Francis R. McAllister,
Asarco's Chairman and Chief Executive Officer, to propose a meeting to discuss
the possibility of a three-way combination involving Phelps Dodge, Asarco and
Cyprus Amax. Shortly thereafter, Messrs. Ward and McAllister sent the following
letter to Mr. Yearley:
August 10, 1999
Douglas C. Yearley
Chairman, President and
Chief Executive Officer
Phelps Dodge Corporation
2600 North Central Avenue -- 16th Floor
Phoenix, AZ 85004-3014
Dear Doug:
We have discussed your request to meet with us jointly. We would like
to advise you that Cyprus Amax and Asarco are pursuing a combination under
a Merger Agreement dated July 15, 1999. Under the terms of that Agreement
we are not at liberty to have a discussion of the nature you were
suggesting earlier today.
Best regards.
/s/ MILTON H. WARD
--------------------------------------------------
Milton H. Ward
Chairman, Chief Executive Officer
and President
Cyprus Amax Minerals Company
/s/ FRANCIS R. MCALLISTER
----------------------------------
Francis R. McAllister
Chairman and Chief Executive
Officer
ASARCO Incorporated
17
<PAGE> 21
On August 11, 1999, during the late afternoon, Mr. Yearley and J. Steven
Whisler, Phelps Dodge's President and Chief Operating Officer, sent the
following letter to Messrs. McAllister and Ward:
[Letterhead of Phelps Dodge Corporation]
August 11, 1999
Francis R. McAllister
Chairman and Chief Executive Officer
ASARCO Incorporated
180 Maiden Lane
New York, NY 10038
Milton H. Ward
Chairman, Chief Executive Officer and President
Cyprus Amax Minerals Company
9100 East Mineral Circle
Englewood, CO 80112
Dear Frank and Milt:
We are disappointed that you have declined to meet with us. As you
know from our telephone conversations, we have considered your pending
business combination and would like to discuss with you our proposal,
described in more detail below, to combine all three of our companies in a
negotiated transaction.
We believe that a three-way combination of Phelps Dodge, Asarco and
Cyprus Amax would create superior shareholder value for the shareholders of
Asarco and Cyprus Amax. A three-way combination, by creating a lower-cost
global competitor, would also benefit the employees and customers of all
three companies. For these reasons, we are approaching you to discuss the
concept of a three-way combination.
We propose that all of the outstanding common stock of both Asarco and
Cyprus Amax be exchanged for Phelps Dodge common stock. The transaction
would be tax-free to your shareholders.
A combination of these businesses would result in cost savings well in
excess of the amounts you have indicated to be achievable through your
pending merger. Preliminarily we estimate that the annual cash cost savings
should reach at least $150 million.
We propose to reward your shareholders for these substantial
incremental benefits by offering your shareholders an exchange ratio of
0.3756 Phelps Dodge common shares for each Asarco common share and 0.2874
Phelps Dodge common shares for each Cyprus Amax common share. These
exchange ratios preserve the relative economics of your proposed
combination and imply premiums of approximately 25% based on current market
prices for Asarco and Cyprus Amax.
We believe this proposal creates superior value for your shareholders
based on:
- the sizeable premium we are offering which, in effect, represents an
up-front payment to your shareholders for the substantial cost savings
we expect to achieve;
- their opportunity to participate in the ongoing value creation of the
combined company; and
- our planned continuation of the current $2.00 per share Phelps Dodge
common stock dividend resulting in substantial dividend increases for
both Asarco and Cyprus Amax shareholders to 3.76 times the level
contemplated in your pending merger.
Our preference is for a combination of all three companies, which
would of course involve the consent of both Asarco and Cyprus Amax to a
modification of your existing agreement.
Since your merger agreement has not been publicly filed, we have not
had the opportunity to review its terms. Based on your August 10, 1999
letter, it is unclear to
18
<PAGE> 22
us whether discussions may proceed once you receive a written proposal such
as this letter. In any event, if necessary under your merger agreement, we
request that you grant one another waivers to allow meetings with us on our
proposal which, as discussed below, would be far more favorable to your
shareholders than your proposed merger.
We are confident that the market reaction to a three-way combination
would be positive. In particular we believe the market would recognize:
- the significantly stronger ability of the combined company, relative
to the Asarco-Cyprus Amax combination, to integrate southwest U.S.
mining operations, administrative functions in Chile and Peru and
world-wide exploration and development activities;
- the financial strength of the combined company and ability to create a
world class portfolio of cost competitive mining assets;
- a strong and deep management team, at both the operating and corporate
levels, with strong credibility in the marketplace;
- the ability to eliminate substantial overhead, exploration, purchasing
and other expenses through the consolidation;
- the tremendous operating leverage of the combined company, together
with enough diversity in other businesses to mitigate cyclical
downturns;
- the ability of the combined company to reduce capital expenditures;
- a strong, liquid balance sheet, with excellent access to capital; and
- how all of these factors would build greater shareholder value, on an
ongoing basis, for the shareholders of all three companies.
This is intended to be a confidential proposal which is subject to the
execution of a definitive merger agreement and receipt of customary
approvals, including approval by our respective Boards of Directors and
shareholders. We have conducted in-depth analyses of the proposed three-way
combination from a regulatory perspective and have concluded that it will
be possible to obtain the necessary approvals on a timely basis.
We believe that our proposal is substantially more attractive to your
shareholders than your pending merger. In addition to the sizeable premium
we are offering, your shareholders would participate, through their ongoing
Phelps Dodge common stock ownership, in a larger enterprise with greater
realizable cost savings and synergies, a stronger portfolio of cost
competitive assets and a deep management team with a strong operating
record. We have no doubt that your shareholders will enthusiastically
embrace our proposal once they learn of it.
We have discussed this proposal with our Board, which fully supports
it. We are confident of our ability, with your cooperation, to complete
this transaction as quickly as your proposed two-party Asarco-Cyprus Amax
merger.
We are firmly committed to moving forward quickly to consummate this
transaction. As we mentioned, we would be happy to meet with you in New
York or another mutually convenient location to amplify our proposal. In
any event, we would appreciate a response by 5:00 p.m., New York time, on
Wednesday, August 18, 1999.
Sincerely,
/s/ DOUGLAS C. YEARLEY
--------------------------------------------------
Douglas C. Yearley
Chairman and
Chief Executive Officer
/s/ J. STEVEN WHISLER
----------------------------------
J. Steven Whisler
President and Chief
Operating Officer
19
<PAGE> 23
On the morning of August 12, 1999, Messrs. McAllister and Ward telephoned
Mr. Yearley and once again refused to meet to discuss Phelps Dodge's proposal.
That afternoon, Phelps Dodge sent the following letter to the Board of Directors
of Asarco and sent a substantially similar letter to the Board of Directors of
Cyprus Amax:
[Letterhead of Phelps Dodge Corporation]
August 12, 1999
Board of Directors of ASARCO Incorporated
c/o Mr. Francis R. McAllister
Chairman and Chief Executive Officer
ASARCO Incorporated
180 Maiden Lane
New York, NY 10038
Gentlemen:
We would like to engage in discussions on our proposal to combine
Asarco, Cyprus Amax and Phelps Dodge in a negotiated transaction. Our
proposal, described in more detail in the attached correspondence, is far
better for the shareholders of your company than your pending merger with
Cyprus Amax because of:
- the sizeable premium we are offering which, in effect, represents an
up-front payment to your shareholders for the substantial cost savings
we expect to achieve;
- our planned continuation of the current $2.00 per share Phelps Dodge
common stock dividend resulting in a substantial dividend increase for
Asarco shareholders to more than three times the level contemplated in
your pending merger; and
- their opportunity to participate in the ongoing value creation of the
combined company through the ownership of Phelps Dodge common stock.
In our attached letter of August 11, we proposed specific exchange
ratios of Phelps Dodge shares for Asarco and Cyprus Amax shares. Based on
the August 11 closing price of Phelps Dodge, Asarco and Cyprus Amax shares,
these ratios implied premiums of approximately 25% for each of Asarco and
Cyprus Amax and preserved the relative economics of your proposed
combination with Cyprus Amax. We would reiterate our intention on the basis
of the current levels of Phelps Dodge, Asarco and Cyprus Amax share prices
to pay premiums of approximately 25% for Asarco and Cyprus Amax.
We believe that consideration in the form of Phelps Dodge common stock
should be particularly attractive to your shareholders. Over the past
several years Phelps Dodge's stock price has significantly outperformed the
stock prices of Asarco and Cyprus Amax. As a result of Phelps Dodge's
higher dividend, the level of outperformance is even greater when viewed on
the basis of the total return to shareholders assuming reinvestment of
dividends. Over the past 10 years Phelps Dodge's total return has been 161%
as compared to -20% and -26% for Asarco and Cyprus Amax, respectively.
Similarly, over the past five years, Phelps Dodge's total return has been
20% as compared to -27% for Asarco and -40% for Cyprus Amax. We are very
proud of this strong management and operational track record over a
difficult copper environment.
Thus far, however, your management has refused to listen to, or
consider, our proposal.
On Tuesday afternoon, August 10, 1999, following a meeting of our
board of directors, we spoke by telephone with Messrs. McAllister and Ward
to request a meeting to discuss our proposal. Just a few hours later, we
received from them the attached letter, dated August 10, 1999, advising
that under the terms of a non-public July 15, 1999 Merger Agreement they
were "not at liberty" to have such a discussion.
20
<PAGE> 24
Since Messrs. McAllister and Ward refused to meet with us, late
yesterday we sent them the enclosed August 11 letter laying out the basic
terms of our proposal and again requesting a meeting.
This morning we received a telephone call from Messrs. McAllister and
Ward again refusing to discuss our proposal.
Although it would have been our preference to communicate through your
CEO, his adamant refusal to meet with us, or even to give our written
proposal any serious consideration, has required that we communicate with
you directly. Since you and Cyprus Amax are the only parties to your merger
agreement, and may amend it or waive its provisions at any time, for
management of the two companies to state that their own agreement prevents
such discussions seems a particularly weak basis for their refusal even to
meet with us.
We are making a similar proposal to Cyprus Amax. Our willingness to
enter into discussions with each of you is not conditioned on the
participation of the other (assuming this is consistent with any
applicable, binding contracts).
We are resolute in our determination to complete this transaction with
both companies. We are confident that your shareholders will recognize the
superior benefits of our proposal, and will accept nothing less.
We still strongly prefer to consummate this transaction on a mutually
satisfactory, negotiated basis. Accordingly, we do not plan to disclose our
proposal publicly at this time. Because of the importance of this matter to
your shareholders, we request that you make a commitment, by 5:00 p.m.
Friday, August 20, 1999, to meet with us promptly to commence serious
negotiations.
Sincerely,
/s/ DOUGLAS C. YEARLEY
--------------------------------------------------
Douglas C. Yearley
Chairman and
Chief Executive Officer
/s/ J. STEVEN WHISLER
----------------------------------
J. Steven Whisler
President and Chief
Operating Officer
On August 20, 1999, Asarco and Cyprus Amax filed a joint proxy
statement/prospectus in connection with their proposed merger, and for the first
time disclosed the terms of their merger agreement. In addition, Asarco and
Cyprus Amax issued a press release announcing that they had set August 25, 1999
as the record date for determining shareholders entitled to vote at the
shareholder meetings, scheduled for September 30, 1999, to consider approval of
their proposed merger. Asarco and Cyprus Amax also disclosed Phelps Dodge's
proposal for a three-way business combination and announced that they were
rejecting it. Asarco and Cyprus Amax also revised upward their estimates of
synergies resulting from their proposed two-party merger. The text of the press
release was as follows:
DENVER, CO. and NEW YORK, N.Y., August 20, 1999 -- Cyprus Amax
Minerals (NYSE:CYM) and ASARCO Incorporated (NYSE:AR) announced that they
have set shareholder meetings for September 30, 1999 to approve their
previously announced merger of equals. Asarco Cyprus Incorporated will be
the largest publicly traded copper company with an estimated cash cost of
under 50 cents. Definitive proxy materials will be mailed to shareholders
of record on August 25, 1999.
Cyprus and Asarco also announced that joint Asarco and Cyprus merger
teams are reviewing all operating and administrative aspects of the new
organization to identify organizational and other profit driven changes in
the way they do business. The companies have engaged outside consultants to
assist in identification of cost savings to facilitate the process. As a
result of these reviews, the estimate of annual expense reductions is now
approaching $200 million including $50 million in reduced administrative
and overhead costs, $50 million from lower costs of purchased materials and
services, $25 million in other costs and $75 million in lower depreciation.
As part
21
<PAGE> 25
of the cost reductions, Cyprus' Denver office will be closed and Asarco's
New York office will be downsized and relocated to New Jersey. In addition,
the companies believe the merger will provide the flexibility to
rationalize higher cost production during periods of low copper prices,
which could be expected to result in operational cash improvements
approaching $75 million annually.
Cyprus and Asarco also jointly reported that the Boards of both
companies had received an unsolicited proposal from Phelps Dodge
Corporation to negotiate an agreement for Phelps Dodge to acquire both
companies for stock. Phelps Dodge proposed an exchange of .3756 of a Phelps
Dodge share for each Asarco share and .2874 of a Phelps Dodge share for
each Cyprus share. Phelps Dodge's proposal is subject to a number of
contingencies.
On August 19, 1999, the Asarco Board of Directors and the Cyprus Amax
Board of Directors, together with their respective legal and financial
advisors, met separately to consider the unsolicited proposal from Phelps
Dodge. Both the Asarco Board of Directors and the Cyprus Amax Board of
Directors determined that pursuing the Asarco Cyprus merger was in best
interests of Asarco and Cyprus Amax stockholders, respectively, and
reconfirmed their respective recommendations of the merger.
Since the merger announcement, both Boards noted that the share prices
of Cyprus and Asarco have outperformed the other U.S. listed copper
companies. Asarco Cyprus expects that at its estimated cash costs of under
50 cents per pound, it will require a copper price of less than 65 cents
per pound to breakeven on a net earnings basis. Asarco Cyprus will have a
strong, experienced management team and the financial capacity to further
enhance operating efficiencies, expand or develop low cost copper
properties and otherwise rationalize operations to achieve optimum
operating levels.
Also on August 20, 1999, Asarco and Cyprus Amax sent the following letter
to Phelps Dodge:
August 20, 1999
Mr. Douglas C. Yearley
Chairman, President and
Chief Executive Officer
Phelps Dodge Corporation
2600 North Central Avenue
Phoenix, AZ 85004-3050
Dear Doug:
We have tried to reach you this morning to convey the response of our
respective Boards and to share with you the attached press release.
Each of our companies has convened its Boards and received thorough
presentations from financial and legal advisors. After full consideration
of your proposal, each Board unanimously decided that it was in the best
interests of its shareholders to pursue the Asarco Cyprus merger. That is
what we intend to do.
Sincerely,
/s/ FRANCIS R. MCALLISTER
--------------------------------------------------
Francis R. McAllister
Chairman and Chief
Executive Officer
Asarco Incorporated
/s/ MILTON H. WARD
----------------------------------
Milton H. Ward
Chairman, Chief Executive
Officer and President
Cyprus Amax Minerals Company
22
<PAGE> 26
During the afternoon of August 20, 1999, Phelps Dodge made the following
announcement by press release:
PHELPS DODGE PROPOSES TO ACQUIRE ASARCO AND CYPRUS AMAX IN
STOCK TRANSACTIONS AT APPROXIMATE 30% PREMIUMS
UNIQUE OPPORTUNITY TO CREATE PORTFOLIO OF
LOWER-COST GLOBAL COPPER ASSETS
PHOENIX, AZ, August 20, 1999 -- Phelps Dodge Corporation (NYSE:PD)
announced today that it is proposing to acquire both Asarco Incorporated
(NYSE:AR) and Cyprus Amax Minerals Company (NYSE:CYM) in stock-for-stock
mergers that would provide approximate 30% premiums to the shareholders of
both companies. Neither proposal is conditioned upon acceptance of the
other.
On July 15, 1999, Asarco and Cyprus Amax announced a no-premium merger
subject to shareholder approval. Phelps Dodge has since made numerous
unsuccessful attempts to negotiate business combinations with both
companies on terms that are greatly superior for Asarco and Cyprus Amax
shareholders.
Phelps Dodge would acquire Asarco in a tax-free merger in which each
share of Asarco common stock would be converted into 0.4098 Phelps Dodge
common shares. Based on the share prices of Phelps Dodge and Asarco before
the stocks were halted this morning, the proposal values Asarco at $24.05
per share, or a total equity value of approximately $960 million,
representing an approximate 30% premium for Asarco shareholders.
Phelps Dodge would acquire Cyprus Amax in a tax-free merger in which
each share of Cyprus Amax common stock would be converted into 0.3135
Phelps Dodge common shares. Based on share prices of Phelps Dodge and
Cyprus Amax before the stocks were halted this morning, the proposal values
Cyprus Amax at $18.40 per share, or a total of equity value of
approximately $1.7 billion, representing an approximate 29% premium for
Cyprus Amax shareholders.
The Phelps Dodge proposals represent a unique opportunity to create a
large, resource-rich portfolio of lower-cost global copper assets with
enhanced flexibility to excel through business cycles. This three-way
combination would also provide significantly greater opportunities to
integrate operations in the southwestern United States, administrative
functions in the United States, Chile and Peru, and worldwide exploration
and development activities than the proposed Asarco/Cyprus Amax merger.
Consistent with demonstrated Phelps Dodge standards, all Asarco and Cyprus
Amax properties would be operated to earn more than the cost of capital
over the copper cycle. At current levels, annual worldwide copper
production of the combined companies would be approximately 3.8 billion
pounds, with attributable copper reserves of approximately 80 billion
pounds, predominantly in the U.S., Chile and Peru.
Phelps Dodge expects the three-way combination to be immediately and
substantially accretive to its cash flow, with significant opportunities to
improve return on capital at the combined entity. The transactions would be
significantly accretive to Phelps Dodge's earnings per share beginning in
the second year after closing, based on
23
<PAGE> 27
the current portfolio of the combined companies and analysts' estimates of
copper prices of $0.80 to $0.85 per pound in 2001.
Phelps Dodge expects to achieve annual cash cost savings of at least
$200 million, to be fully phased in by the end of the second year after
closing, through reductions in SG&A expenses, operating improvements and
efficiencies in exploration. Additional non-cash savings of approximately
$65 million per year are expected to result from lower depreciation
charges. These cost savings are based on public information and the
Company's expectation that it can deliver at least $75 million in
incremental savings above the new cash synergy figure of $125 million now
projected in the proposed Asarco/Cyprus Amax combination. This does not
include any cost savings for the rationalization of high-cost production
during periods of low copper prices. The transactions would use purchase
accounting.
Phelps Dodge intends to continue its current annual cash dividend of
$2.00 per share. This would provide a substantial dividend increase to
shareholders of both Asarco and Cyprus Amax -- equal to 4.1 times the
dividend they would receive in the proposed Asarco/Cyprus Amax merger.
Douglas C. Yearley, Chairman and Chief Executive Officer of Phelps
Dodge, said, "We are very disappointed that Asarco and Cyprus Amax have
declined our repeated attempts to enter into negotiated agreements. Our
proposed three-way combination provides superior value to shareholders of
Asarco and Cyprus Amax, including substantial premiums, the opportunity to
participate in the tremendous upside potential of the combined entity, and
a cash dividend that is more than quadruple what they would receive in the
proposed Asarco/Cyprus Amax transaction."
Yearley continued, "This compelling combination would create a more
cost-effective global copper producer with the operating expertise, broad
resource base and financial strength to deliver enhanced value to
shareholders of all three companies. The improved efficiencies of the
combined companies would also benefit other stakeholders, including our
customers, employees and communities. In the global copper market,
efficient and low-cost operations are critical, and this transaction would
enhance our ability to compete and give us greater ability to satisfy our
customers' needs. Customers would continue to enjoy Phelps Dodge's high
standard of on-time delivery and quality products and benefit from our
combined lower cost structure; employees would become part of a stronger
organization with enhanced ability to compete for large-scale projects; and
communities would benefit from our corporate citizenship and philanthropy
and continued commitment to responsible environmental practices."
J. Steven Whisler, President and Chief Operating Officer of Phelps
Dodge, said, "We are committed to optimizing the combined operations of the
three companies and delivering superior returns on capital throughout the
entire copper cycle. Phelps Dodge has generated much better shareholder
returns than Asarco and Cyprus Amax through copper cycles -- greatly
outperforming both companies over the past three, five, 10 and 15-year
periods. For example, during the past 10 years on a total return basis with
dividends reinvested Phelps Dodge has produced a positive shareholder
return of 161% versus negative 20% for Asarco and negative 26% for Cyprus
Amax. Over the 15-year period, Phelps Dodge has produced a positive
shareholder return of 1024% versus 25% for Asarco and 102% for Cyprus Amax.
Phelps Dodge's strong and
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<PAGE> 28
deep management and operating teams have a proven track record of active,
value-based portfolio management and of taking decisive actions required to
build sustainable long-term shareholder value. We intend to take advantage
of the substantial opportunities to integrate the combined companies'
mining assets and will ensure that every property in the portfolio provides
an appropriate return on invested capital."
Yearley concluded, "This innovative three-way combination fits well
with our strategy of sustaining a strong and liquid balance sheet,
achieving earnings and cash flow accretion and improving our resource base,
while maintaining a cost-competitive profile. While we continue to prefer
negotiated transactions, this three-way combination is so compelling, both
strategically and financially, that we are determined to take all necessary
steps to complete it expeditiously. We are confident we will obtain the
necessary regulatory approvals to complete the transactions and believe
shareholders of Asarco and Cyprus Amax will strongly support this unique
opportunity to create value in the global copper market in which we
compete."
Phelps Dodge's financial advisor is Morgan Stanley Dean Witter and its
legal advisors are Debevoise & Plimpton and Shearman & Sterling.
Phelps Dodge Corporation is among the world's largest producers of
copper. The company also is one of the world's largest producers of carbon
black, one of the world's largest manufacturers of magnet wire, and has
operations and investments in mines and wire and cable manufacturing
facilities around the world. Phelps Dodge has operations in 28 countries.
Statements in this press release include "forward-looking statements"
that express expectations of future events or results. All statements based
on future expectations rather than on historical facts are forward-looking
statements that involve a number of risks and uncertainties, and the
company cannot give assurance that such statements will prove to be
correct. Please refer to the Management's Discussion and Analysis sections
of the company's report on Form 10-K for the year ended December 31, 1998.
Later that day, Phelps Dodge sent the following letter to the Board of
Directors of Asarco (and sent a substantially similar letter to the Board of
Directors of Cyprus Amax):
[Letterhead of Phelps Dodge Corporation]
August 20, 1999
Board of Directors of ASARCO Incorporated
c/o Mr. Francis R. McAllister
Chairman and Chief Executive Officer
ASARCO Incorporated
180 Maiden Lane
New York, NY 10038
Gentlemen:
We are disappointed in your response to our proposed three-way
combination of Asarco, Cyprus Amax and Phelps Dodge. As you know, we have
on three recent
25
<PAGE> 29
occasions requested the opportunity to discuss our proposal, which we
believe would be far superior to your shareholders than your proposed
combination with Cyprus Amax.
We are particularly disappointed that instead of accepting our
previous requests to meet to discuss our proposal to acquire Asarco for a
substantial premium, you chose today to announce unilaterally our interest
in acquiring Asarco and Cyprus Amax and to reject our proposal in favor of
your no-premium merger proposal with Cyprus Amax. This appears consistent
with the manner in which you have chosen to treat your own shareholders by
announcing just today, at the same time you first disclosed the terms of
your July 15 merger agreement, that the record date for your shareholder
vote on the no-premium merger with Cyprus Amax would be August 25. Since
trades after today will settle after August 25, this effectively precluded
any significant trading in the market on an informed basis before the
determination of shareholders eligible to vote at your meeting.
In light of your unilateral announcement, we have no other choice than
to publicly announce our proposal to enter into a business combination with
Asarco and Cyprus Amax, so that share owners of all three companies are
fully informed.
Terms of our Proposal
We propose a business combination of Phelps Dodge and Asarco pursuant
to which all of the outstanding common stock of Asarco would be exchanged
for Phelps Dodge common stock at an exchange ratio of 0.4098 Phelps Dodge
common shares for each Asarco common share. We are also independently
proposing to Cyprus Amax a business combination of Phelps Dodge and Cyprus
Amax pursuant to which all of the outstanding common stock of Cyprus Amax
would be exchanged for Phelps Dodge common stock at an exchange ratio of
0.3135 Phelps Dodge common shares for each Cyprus Amax common share. Based
on share prices for the three companies' common shares before trading was
halted this morning, these ratios imply a premium of approximately 30% for
Asarco and a premium of approximately 29% for Cyprus Amax, while preserving
the relative economics of the exchange ratio under your proposed
combination with Cyprus Amax.
Following the combination, we plan to continue the current $2.00 per
share Phelps Dodge common dividend. This would result in a substantial
dividend increase for Asarco shareholders to 4.1 times the dividend
contemplated in your proposed merger with Cyprus Amax.
Our proposed transaction would be tax-free for your shareholders. In
addition, through their ownership of Phelps Dodge common stock, your
shareholders would continue to participate in the ongoing value creation of
the combined company. Although we prefer a transaction involving all three
companies, we are prepared to enter into a negotiated business combination
with either Asarco or Cyprus Amax, regardless of whether the other company
is willing to proceed on a negotiated basis.
We believe that consideration in the form of Phelps Dodge common stock
should be particularly attractive to your shareholders. Over the past
several years Phelps Dodge's stock price has significantly outperformed the
stock prices of Asarco and Cyprus Amax. As a result of Phelps Dodge's
higher dividend, the level of outperformance is even greater when viewed on
the basis of the total return to
26
<PAGE> 30
shareholders assuming reinvestment of dividends. Over the past 10 years
Phelps Dodge's total return has been 161% as compared to negative 20% and
negative 26% for Asarco and Cyprus Amax, respectively. Similarly, over the
past 15 years, Phelps Dodge's total return has been 1024% as compared to
25% for Asarco and 102% for Cyprus Amax. We are very proud of this strong
management and operational track record over a difficult copper
environment.
The Combined Company
We believe that our proposal presents a unique opportunity to create a
large, resource-rich portfolio of lower-cost global copper assets with
enhanced flexibility to deliver superior results in all business cycles.
Our proposal would create a much stronger company than would your proposed
merger with Cyprus Amax through:
- the significantly stronger ability of the combined company, relative
to the Asarco-Cyprus Amax combination, to integrate southwestern U.S.
mining operations, administrative functions in the U.S., Chile and
Peru, and worldwide exploration and development activities;
- the financial strength of the combined company and ability to create
a world class portfolio of cost-competitive mining assets;
- a strong and deep management team, at both the operating and
corporate levels, with strong credibility in the marketplace;
- the ability to eliminate substantial overhead, exploration,
purchasing and other expenses through the consolidation;
- the tremendous operating leverage of the combined company, together
with enough diversity in other businesses to mitigate cyclical
downturns;
- the immediate and substantial accretion to the cash flow of the
combined company resulting from the transaction;
- the significant accretion to earnings per share of the combined
company beginning in the second year after closing, based on the
current portfolio of the combined companies and analysts' estimates
of copper prices of $0.80 to $0.85 per pound in 2001;
- the total current annual copper production of the combined company of
3.8 billion pounds and the total attributable copper reserves of 80
billion pounds;
- the increased ability of the combined company to compete for
world-class projects;
- the ability of the combined company to reduce capital expenditures;
- the strong, liquid balance sheet of the combined company, with
excellent access to capital; and
- the way all of these factors would build greater shareholder value,
on an ongoing basis, for the shareholders of all three companies.
Through the measures described above we estimate that in a three-way
combination we could achieve approximately $200 million in annual cash cost
savings,
27
<PAGE> 31
fully phased in by the end of the second year after closing of the
transaction. In addition, we expect lower depreciation of approximately $65
million annually, bringing total estimated annual savings to approximately
$265 million. These cost savings are based on public information and our
expectation that we can deliver at least $75 million in incremental savings
above the new cash synergy figure of $125 million that you have projected
in the proposed Asarco-Cyprus Amax combination. This does not include any
cost savings from the rationalization of high-cost production during
periods of low copper prices.
Following the combination, we would expect to operate all properties
in accordance with Phelps Dodge's disciplined management approach. This
means that each property would be run on a basis intended to earn in excess
of the cost of capital over a full copper price cycle. We believe that
Phelps Dodge's management team has the credibility to make the tough
decisions necessary to rapidly integrate all three businesses and to create
value for shareholders.
A three-way combination, by creating a more efficient global
competitor, would also benefit the employees and customers of all three
companies. We have conducted an in-depth analysis of the three-way
combination from a regulatory perspective and have concluded that it will
be possible to obtain the necessary approvals on a timely basis.
Our Board of Directors has authorized this proposal and we are
resolutely committed to its consummation. We are confident that your
shareholders will find our proposal to be a unique and compelling
opportunity. We continue to prefer to proceed on a mutually satisfactory,
negotiated basis but are prepared to pursue all other avenues should that
be necessary. We are ready to meet with you or your management at any time.
Sincerely,
<TABLE>
<S> <C>
/s/ DOUGLAS C. YEARLEY /s/ J. STEVEN WHISLER
------------------------------------------ ------------------------------------------
Douglas C. Yearley J. Steven Whisler
Chairman and Chief Executive Officer President and Chief Operating Officer
</TABLE>
28
<PAGE> 32
On August 25, 1999, Asarco and Cyprus Amax sent the following letter to
Phelps Dodge:
August 25, 1999
Mr. Douglas C. Yearley
Chairman, President and
Chief Executive Officer
Phelps Dodge Corporation
2600 North Central Avenue
Phoenix, AZ 85004-3050
Dear Doug:
We and our respective boards have considered your revised proposal to
acquire our companies. We have the following issues with your proposal:
1. The exchange ratios proposed in your August 20 press release do not
allocate to Cyprus Amax and Asarco holders a fair share of the value
created by uniting their two companies. We are prepared to negotiate
a transaction with Phelps Dodge that would provide our holders with
.4055 shares of Phelps Dodge common stock for each Cyprus Amax share,
and .5300 Phelps Dodge shares for each Asarco share.
2. In order for us to proceed with Phelps Dodge, you must make clear
that Phelps Dodge will undertake all actions necessary to secure
regulatory approval for your proposed transaction including any
divestiture or similar action required, and will provide credible
assurances that such regulatory approval will be forthcoming. The
statements in your letters concerning antitrust issues are not
sufficient on this point.
3. You have not proposed a form of contract for your transaction. We
would be prepared to proceed on the basis of representations,
warranties and covenants made by Cyprus Amax and Asarco to each other
in their merger agreement, with similar representations, warranties
and covenants made by Phelps Dodge.
4. Your letter did not indicate whether your proposal was subject to due
diligence. A due diligence requirement introduces substantial
uncertainty as to your proposal. We would expect, as part of our
effort to close our pending merger or any potential transaction with
you as quickly as possible, that you would not require any further
due diligence with respect to either Cyrus Amax or Asarco.
We strongly believe that the combination of Cyprus Amax and Asarco,
without the effect of combining further with Phelps Dodge, provides greater
value to Cyprus Amax and Asarco holders than your August 20 proposal, poses
fewer regulatory issues and can be completed more quickly. Accordingly, we
will be proceeding to present that transaction to our stockholders and to
closing on September 30, 1999. We are prepared, however, to negotiate a
transaction that involves all three companies that satisfies all the
foregoing requirements. For your information, we are attaching to this
letter a copy of the press release Asarco and Cyprus Amax issued today
concerning our response to Phelps Dodge. We also want to advise you that
apart from this
29
<PAGE> 33
communication, neither party has waived any of its legal or other rights,
or rights or obligations under our merger agreement.
Sincerely,
<TABLE>
<S> <C>
/s/ FRANCIS R. MCALLISTER /s/ MILTON H. WARD
------------------------------------- -------------------------------------
Francis R. McAllister Milton H. Ward
Chairman and Chief Chairman, Chief Executive
Executive Officer Officer and President
ASARCO Incorporated Cyprus Amax Minerals Company
</TABLE>
The text of the attached press release was as follows:
DENVER, CO AND NEW YORK, NY, AUGUST 25, 1999 -- Cyprus Amax Minerals
Company (NYSE: CYM) and ASARCO Incorporated (NYSE: AR) today jointly
announced that they have improved the terms of their own combination
transaction. In addition they have written to Phelps Dodge outlining their
willingness to negotiate with Phelps Dodge on terms included in the letter.
According to the letter, Asarco and Cyprus Amax would be willing to proceed
with a three-way combination with Phelps Dodge if its proposed exchange
ratios are increased, if Phelps Dodge fully underwrites the risk of
antitrust problems with its proposal and if the contract terms mirror those
of the Asarco/Cyprus contract. Asarco and Cyprus Amax said the exchange
ratios they would require were .5300 of a Phelps Dodge share for Asarco
holders and .4055 of a Phelps Dodge share for Cyprus Amax holders. The
letter to Phelps Dodge is attached.
The two companies also said they have decided to improve the financial
terms of their own combination by including a special payment of $5.00 per
share to the stockholders of the combined Asarco Cyprus Incorporated. The
special payment would be paid to stockholders as soon as possible after
consummation of the merger. Asarco and Cyprus Amax emphasized that they
were proceeding with their two-way combination which, subject to
stockholder approval, will close on September 30, 1999.
Speaking together, Milton H. Ward, Chairman and Chief Executive
Officer of Cyprus Amax and Francis R. McAllister, Chairman and Chief
Executive Officer of Asarco said "Our response to Phelps Dodge evidences
our intent to secure the best value for our shareholders whether through a
three way combination including Phelps Dodge or through consummation of the
merger previously announced. We have presented very simple terms to Phelps
Dodge which we believe recognize the contributions our two companies make
to a three way combination. The proposal previously communicated by Phelps
Dodge fails to reward our stockholders for the values derived from the
Asarco Cyprus transaction. Our proposed exchange ratio gives recognition to
the fact that our shareholders would be contributing approximately 50% of
the value of a three way combination.
"We intend to move forward to complete our own merger transaction as
soon as possible and as a sign of confidence of our ability to achieve cost
reductions of at least $200 million annually, Asarco Cyprus will make a
special payment to shareholders when the merger closes. This special $5.00
per share payment reflects the Boards' and managements' confidence in their
ability to deliver benefits from the merger. Asarco Cyprus is expected to
have in excess of $1 billion in cash at the time of closing and
30
<PAGE> 34
the Boards of both companies have agreed that Asarco Cyprus will pursue the
sale of Cyprus Amax's investments in Kinross Gold and its Australian coal
holdings and Asarco's specialty chemicals business. We would expect the
sales to be completed within six months after closing. Proceeds are
expected to approach $1 billion and cash taxes would be minimized due to
tax benefits from the sale of the Kinross shares. Proceeds would be used to
pay down debt and improve the liquidity of the company."
Messrs. Ward and McAllister stated that they and their respective
Boards are committed to maximizing shareholder value and will continue to
do so after the merger is completed. In order to ensure that Phelps Dodge
or any interested buyer is able to present a bona fide proposal to acquire
100% of the stock of the Company, during the first 90 days following
completion of the merger, stockholders will have the right to call a
meeting to redeem the rights plan. In addition, change in control
provisions in any employment contracts entered into by the Company will be
waived for that same 90 day period.
Actual results may vary materially from any forward-looking statement
the Company makes. Refer to the Cautionary Statement and Risk Factors
contained in Cyprus Amax's and Asarco's 1998 Form 10Ks.
In response, Phelps Dodge issued the following press release:
PHELPS DODGE CONFIRMS RECEIPT OF LETTER FROM
ASARCO AND CYPRUS AMAX
PHOENIX, Aug. 25 -- Phelps Dodge Corporation (NYSE: PD) confirmed that
it has received a letter from Asarco Incorporated (NYSE: AR) and Cyprus
Amax Minerals Company (NYSE: CYM) and issued the following response:
"The proposal put forth by Asarco and Cyprus Amax does not change
Phelps Dodge's commitment to complete a three-way combination that is
beneficial to shareholders of all three companies. While Phelps Dodge will
review the most recent proposal from Asarco and Cyprus Amax, we believe
that the Phelps Dodge proposal, which already provides Asarco and Cyprus
Amax shareholders a 30% premium, a $2.00 annual dividend and very
substantial participation in the greater upside potential of the three-way
combination, is fully priced based on public information and Phelps Dodge's
best estimates of the real, achievable cost synergies in a three-way
combination. Phelps Dodge indicated that the economic aspects of Asarco and
Cyprus Amax's proposed three-way merger terms are totally unreasonable and
would deliver nearly all of the economic value of the three-way combination
to Asarco and Cyprus shareholders."
Douglas C. Yearley, Chairman and Chief Executive Officer of Phelps
Dodge, added, "If Asarco and Cyprus Amax are truly interested in a
negotiated transaction and not just posturing, we would be more than
willing to begin real discussions. Neither company has attempted to sit
down with us."
Phelps Dodge indicated that it intends to complete its review in the
near term and to make a more definitive and comprehensive response
thereafter.
31
<PAGE> 35
On August 27, 1999, Phelps Dodge issued the following press release:
PHELPS DODGE FILES REGISTRATION STATEMENTS FOR
EXCHANGE OFFERS FOR ASARCO AND CYPRUS AMAX
------------------------------------
FILES PRELIMINARY PROXY STATEMENTS TO OPPOSE ASARCO/CYPRUS AMAX MERGER;
COMMENCES LITIGATION AGAINST BOTH COMPANIES
PHELPS DODGE WILL WITHDRAW OFFER AND NOT BID FURTHER IF ASARCO AND
CYPRUS AMAX SHAREHOLDERS APPROVE TWO-WAY MERGER AT SEPTEMBER 30 VOTE
PHOENIX, AZ, AUGUST 27, 1999 -- Phelps Dodge Corporation (NYSE: PD)
announced today that it has filed registration materials with the
Securities and Exchange Commission for exchange offers for all outstanding
Asarco Incorporated (NYSE: AR) and Cyprus Amax Minerals Company (NYSE: CYM)
common shares. Phelps Dodge will commence the exchange offers as soon as
the registration statements are declared effective.
In addition, the Company filed preliminary proxy materials with the
Securities and Exchange Commission to solicit proxies from Asarco and
Cyprus Amax stockholders to vote against the proposed merger of Asarco and
Cyprus Amax. Asarco and Cyprus Amax have set shareholder meetings for
September 30, 1999 to vote on their proposed merger.
Separately, Phelps Dodge announced that it has commenced litigation in
New Jersey and Delaware against Asarco and Cyprus Amax, respectively, and
their directors, for breaching their fiduciary duties by impermissibly
prohibiting directors from informing themselves of any third-party merger
or acquisition proposal and providing excessive break-up fees.
"While we continue to prefer negotiated transactions, we are committed
to this compelling three-way combination, and are taking all necessary
steps to complete it," said Douglas C. Yearley, Chairman and Chief
Executive Officer of Phelps Dodge. "If Asarco and Cyprus Amax are truly
interested in a negotiated transaction we are ready to begin discussions
immediately. We continue to believe our offer is fully priced and
compelling. We are confident that shareholders of Asarco and Cyprus Amax
will recognize that our proposals are clearly superior to the Asarco/Cyprus
Amax no-premium two-way merger. We view the September 30 vote as a
referendum. If Asarco and Cyprus Amax shareholders do approve their two-way
combination, we will withdraw our substantial premium proposal and will not
bid further."
Phelps Dodge also today sent the following letter to the Chairmen of
Asarco and Cyprus Amax:
August 27, 1999
Mr. Francis R. McAllister
Chairman and Chief Executive Officer
ASARCO Incorporated
180 Maiden Lane
New York, NY 10038
Mr. Milton H. Ward
Chairman, Chief Executive and President
Cyprus Amax Minerals Company
9100 East Mineral Circle
Englewood, CO 80112
32
<PAGE> 36
Dear Frank and Milt:
We continue to believe that our proposed three-way combination is
clearly superior for your shareholders than your proposed no-premium,
two-party transaction. Our fully priced proposal provides a substantial
premium, our $2.00 annual dividend and opportunity for participation in
greater upside potential.
In your August 25 letter to us you identified four issues with our
proposal. We are prepared to accept three of your points. On the fourth
point, your demand on exchange ratios, we hope that you will reconsider
your unreasonable position and sit down at the table with us to complete
our proposed three-way combination.
Should you proceed to complete your two-way merger, you will proceed
alone because we will withdraw our substantial premium proposal and will
not bid further. Your September 30 vote will be a referendum on our
proposal.
Your proposal on exchange ratios is so unreasonable that its sincerity
is questionable. It seems to be premised on the flawed assumption that
since your combined production would be comparable to Phelps Dodge's, you
should be valued at the same level as Phelps Dodge. Of course, this is
clearly not what investors believe since it is not reflected in the
relative market valuations of the three companies. The simplistic
assumption you seem to be making fails to reflect Phelps Dodge's long track
record of making tough management decisions and delivering significantly
greater value to shareholders than either ASARCO or Cyprus Amax. Over a
fifteen year period we have delivered total returns to shareholders of
1,024% in contrast to 25% for ASARCO and 102% for Cyprus Amax.
Moreover, based on the information in your August 20 Form S-4
registration statement, it appears that the conclusions arrived at by your
own investment bankers do not support your exchange ratio demand. The
exchange ratios you have demanded would deliver nearly all of the
incremental value to be derived from a three-way combination to your
shareholders and very little to our shareholders. This is, as you no doubt
anticipated, completely unacceptable to us.
In addition, we don't believe that your shareholders will be fooled by
the flawed measures you announced which purport to accommodate the
possibility of a third party transaction during the 90 days following
completion of your merger. None of your public statements address in any
meaningful way all of the many steps that would be necessary to give your
shareholders a realistic opportunity to benefit from an attractive third
party proposal. Among the additional matters that would have to be
addressed if you were serious about accommodating third party transactions
would be to eliminate your staggered Board and the highly unusual
management entrenchment arrangements built into your two-party merger
agreement.
Those unusual management-entrenchment provisions guarantee no change
in the roles of the proposed four senior executives of the ASARCO-Cyprus
combined company prior to the 2002 annual meeting except upon a vote of 75%
of the Board. Since management will hold 25% of the Board seats, this
effectively requires a unanimous vote of the non-management directors.
Because your Board is divided into three classes, this means that a buyer
of 100% of the outstanding stock of the ASARCO-Cyprus combined company
would not be able to obtain management control for nearly three years.
Indeed, even in the two aspects of your 90-day proposal for which you
try to take credit, there is confusion, contradiction and unnecessary
complexity. You propose an unspecified shareholder mechanism to redeem your
poison pill which is inevitably more cumbersome than simple Board action.
Secondly, we noted with interest the statement in your August 25 press
release that "In addition, change in control
33
<PAGE> 37
provisions in any employment contracts entered into by the Company will be
waived for that same 90 day period." We were therefore surprised to read
the contradictory statement in the Form 8-K you filed yesterday that:
"The rights and benefits under the existing [change of
control] arrangements with the employees... of each of
Cyprus Amax and ASARCO, however, will remain in full
force and effect and will be unaffected during the 90
days following completion of the business combination,
as will any rights under arrangements entered into
with such employees in substitution for any existing
arrangements."
Frankly, we believe that all of your statements concerning the 90-day
period are no more than a public relations gambit. There is no evidence in
your conduct to date that you have any willingness to pursue transactions
that are in the best interests of your shareholders.
With regard to the three points in your August 25 letter other than
the exchange ratio, we are pleased to confirm that:
- We are prepared to enter into a merger agreement with substantially
the same representations, warranties and covenants as those contained
in your July 15 merger agreement.
- This proposal is not subject to due diligence.
- We have studied the regulatory issues carefully and are confident that
all necessary regulatory approvals for our three-way combination will
be obtained on a timely basis. We would be pleased to give you strong
contractual assurances on this point.
If you take seriously your fiduciary duty and want to inform
yourselves about a compelling transaction that would be in the best
interests of your shareholders, let's sit down and negotiate. If not, your
shareholders will decide which alternative they prefer on September 30.
Sincerely,
<TABLE>
<S> <C>
/s/ DOUGLAS C. YEARLEY /s/ J. STEVEN WHISLER
------------------------------ ------------------------------
Douglas C. Yearley J. Steven Whisler
Chairman and President and
Chief Executive Officer Chief Operating Officer
</TABLE>
On September 3, 1999, Phelps Dodge commenced its exchange offers for Asarco
and Cyprus Amax common shares and issued the following press release:
PHELPS DODGE COMMENCES EXCHANGE OFFERS FOR
ASARCO AND CYPRUS AMAX
PHOENIX, AZ, September 3, 1999 -- Phelps Dodge Corporation (NYSE:
PD) announced today that it has formally commenced exchange offers for
all outstanding Asarco Incorporated (NYSE: AR) and Cyprus Amax
Minerals Company (NYSE: CYM) common shares.
Phelps Dodge's registration statements for its previously
announced exchange offers to acquire Asarco and Cyprus Amax were
declared effective by the Securities and Exchange Commission
yesterday. Under the terms of the Phelps
34
<PAGE> 38
Dodge exchange offers, Asarco shareholders would receive 0.4098 Phelps
Dodge shares for each share of Asarco stock tendered and Cyprus Amax
shareholders would receive 0.3135 Phelps Dodge shares for each share
of Cyprus Amax stock tendered. The expiration date of the exchange
offers will be 12:00 midnight, New York City time, on Friday, October
1, 1999 and may be extended from time to time by Phelps Dodge until
the various conditions of the exchange offers have been satisfied or
waived.
"We are pleased to formally commence our exchange offers for
Asarco and Cyprus Amax," said Douglas C. Yearley, Chairman and CEO of
Phelps Dodge. "We look forward to a swift completion of these
transactions."
On September 7, 1999, Asarco and Cyprus Amax issued the following press
release:
DENVER, CO. AND NEW YORK, N.Y., SEPTEMBER 7, 1999 -- Cyprus Amax
Minerals Company (NYSE: CYM) and ASARCO Incorporated (NYSE: AR) today
announced that they were urging the shareholders of Cyprus Amax and
Asarco to vote for the proposed Cyprus Amax and Asarco merger on
September 30th.
Cyprus Amax and Asarco emphasized that their boards view the Asarco
Cyprus merger as the only transaction which is assured of completion
on September 30th and the only transaction which will give their
shareholders a fair share of the value created by combining their two
companies.
Speaking jointly, Milton H. Ward, Chairman and Chief Executive Officer
of Cyprus Amax, and Francis R. McAllister, Chairman and Chief
Executive Officer of Asarco, emphasized that the benefits to
shareholders of the Asarco Cyprus merger, include:
- A special cash payment of $5 per share immediately after the
merger;
- Ownership in the largest publicly traded copper company in the
world, producing 2.0 billion pounds annually;
- 100% share in $275 million of annual cost savings which should
enhance earnings and cash flow substantially; and
- Ownership in a company with a strong balance sheet and the
operational advantages of a 50 cent per pound cash cost and a
net earnings break-even price at 65 cents per pound of copper.
Cyprus Amax and Asarco warned stockholders that Phelps Dodge's
unsolicited, hostile attempt to break up the fully negotiated Asarco
Cyprus merger seeks to
35
<PAGE> 39
leave Asarco and Cyprus Amax stockholders with only 43% of a three-way
enterprise.
The companies stated, "We believe this percentage ownership is
inequitable, as evidenced by the stark contrast of the much greater
contributions Asarco and Cyprus Amax stockholders are being asked to
make to such a three-way enterprise. Specifically:
- 57% of the production
- 61% of the ore reserves
- 4 of the 5 lowest cost mines
- 60% of the copper margin
- 92% of the synergies
- 91% of the cash
- Lower cash costs
Cyprus Amax and Asarco also warned shareholders: "The Phelps Dodge
proposal is subject to numerous conditions which cannot be fulfilled
by September 30, including Phelps Dodge's own stockholder approval. We
urge our stockholders to beware this effort to break up our
value-creating merger, beware Phelps Dodge's 'spin campaign' of
letters, lawsuits and public relations and beware that Phelps Dodge
cannot guarantee when or if either of its hostile transactions will
close. In contrast, our Boards of Directors are committed to creating
the premier public copper investment in the world on September 30, and
will do so with the approval of our stockholders -- which we are
vigorously seeking."
Cyprus Amax and Asarco urged their stockholders to vote for the merger
by signing, dating and mailing the white proxy card sent to them by
Asarco or Cyprus Amax.
Actual results may vary materially from any forward-looking statement
the Company makes. Refer to the Cautionary Statement and Risk Factors
contained in Cyprus Amax's and Asarco's 1998 Form 10Ks.
36
<PAGE> 40
On September 8, 1999, Asarco and Cyprus Amax issued the following press
release:
DENVER, CO., and NEW YORK, NY, September 8, 1999 -- Cyprus Amax
Minerals Company (NYSE: CYM) and ASARCO Incorporated (NYSE: AR) today
announced that their respective Boards of Directors unanimously
rejected Phelps Dodge's exchange offers to their shareholders as
inadequate and not in the best interests of their shareholders. The
Boards also unanimously recommended that their shareholders reject the
exchange offers and not tender their shares, and unanimously
reaffirmed that the terms of the Asarco Cyprus business combination
are fair to, and in the best interests of, their shareholders.
In their recommendations to their shareholders, the Cyprus Amax and
Asarco Boards cited, among other things:
- The advantages to the shareholders of becoming shareholders in
Asarco Cyprus, including, that they retain 100% of the $275
million of annual savings created by the combination.
- The Phelps Dodge exchange offers are inadequate and fail to
compensate Cyprus Amax and Asarco shareholders for their
relative contribution to a three-way combination with Phelps
Dodge.
- The opinion, rendered on September 8, 1999, of their respective
financial advisors that the consideration offered to the
shareholders is inadequate to such holders from a financial
point of view.
- The special $5.00 per share cash payment to the stockholders of
Asarco Cyprus immediately following the combination provides
them with immediate and significant value.
- A three-way combination raises substantial issues under the
antitrust laws. The Boards noted that the Phelps Dodge exchange
offers are conditioned on the expiration of the Hart-Scott
antitrust waiting period but Phelps Dodge has not even filed
the required notification yet. In contrast, the applicable
waiting period for the Asarco Cyprus combination has already
expired.
- The highly conditional nature of the Phelps Dodge exchange
offers, including with respect to antitrust regulatory approval
and Phelps Dodge's own stockholder approval which is not being
sought until after the Cyprus Amax and Asarco September 30
shareholder meeting date.
Accordingly, each Board recommends to its shareholders that they do
not tender their shares to Phelps Dodge and strongly urges them to
vote in favor of the Asarco Cyprus combination on September 30.
Milton H. Ward, Chairman and Chief Executive Officer of Cyprus Amax
and Francis R. McAllister, Chairman and Chief Executive Officer of
Asarco, speaking together said, "It is absolutely clear from Phelps
Dodge's actions over
37
<PAGE> 41
the course of the last few weeks that it is trying to coerce Cyprus
Amax and Asarco shareholders into a situation that is not in their
best interests. First, Phelps Dodge's opportunistic and inadequate
exchange offers do not give our shareholders their fair ownership
interest in the combined entity. Second, a three-way combination with
Phelps Dodge raises substantial antitrust issues that Phelps Dodge has
not yet begun to address. Third, Phelps Dodge has never offered any
persuasive reason why it would walk away if our shareholders approve
our two-way combination, if in fact Phelps Dodge is sincere in wanting
to merge with both companies."
Messrs. Ward and McAllister went on to say that "The Boards of Cyprus
Amax and Asarco are committed to achieving the best value for their
shareholders and will not sacrifice their shareholders' interest for
Phelps Dodge's own agenda, which is to maximize value for Phelps Dodge
and its shareholders. It is for this reason that we strongly recommend
shareholders vote for the Asarco Cyprus transaction on September 30."
Cyprus Amax and Asarco also announced today that they were each filing
with the Securities and Exchange Commission, and will mail to their
shareholders, a Solicitation/Recommendation Statement on Schedule
14D-9 setting forth the Board's formal recommendation with respect to
the Phelps Dodge exchange offer and the reasons for the
recommendation. Additional information with respect to each Board's
decision to recommend that shareholders reject the Phelps Dodge offer
is contained in the Schedule 14D-9.
Actual results may vary materially from any forward-looking statements
the companies make. Refer to the cautionary statement risk factors
contained in Cyprus Amax's and Asarco's 1998 Form 10K's.
38
<PAGE> 42
LITIGATION
On August 23, 1999, Phelps Dodge, through its directly owned subsidiary CAV
Corporation, sent a written demand to Cyprus Amax for records of its
shareholders, pursuant to Section 220 of the Delaware General Corporation Law.
Some of these materials were delivered to Phelps Dodge on September 1, 1999, and
others have been delivered since. On August 24, 1999, Phelps Dodge and its
directly owned subsidiary AAV Corporation commenced an action by order to show
cause in the Superior Court of the State of New Jersey, Chancery Division,
Mercer County, pursuant to N.J.S.A. 14A:5-28 to seek shareholder records from
Asarco. This action is captioned Phelps Dodge Corp. and AAV Corp. v. ASARCO
Inc., Docket No. MER-C-81-99. In connection with this action, Phelps Dodge made
an application for summary injunctive relief and the court ruled that
shareholder lists and related documents must be made available to Phelps Dodge
and AAV within forty-eight hours after the filing of their preliminary proxy
materials with the SEC. Some of these materials were delivered to Phelps Dodge
on August 29, 1999 and others have been delivered since then.
In addition, Phelps Dodge commenced actions in the Superior Court of the
State of New Jersey and in the Court of Chancery of the State of Delaware
against Asarco and Cyprus Amax and their respective Boards of Directors for
their breach of fiduciary duties including their refusals to consider and to
allow the shareholders of both companies to consider the Phelps Dodge proposal.
In particular, Phelps Dodge alleges that Cyprus Amax and Asarco have entered
into an illegal merger agreement that purports to prohibit the companies from
taking any action or entering into any discussions relating to a takeover
proposal. In light of these provisions of the Asarco/Cyprus Amax merger
agreement, Asarco and Cyprus Amax are incapable of evaluating meaningfully the
Phelps Dodge proposal and cannot make informed recommendations to their
shareholders. Phelps Dodge has also challenged the termination or "break up" fee
payable to Asarco in certain circumstances as grossly excessive; that fee
amounts to more than 6% of Asarco's equity value as of July 15, 1999, the date
of the Asarco/Cyprus Amax merger agreement.
Furthermore, the Asarco/Cyprus Amax merger agreement includes corporate
governance provisions that disenfranchise shareholders by guaranteeing until
2002 the management positions of the chief executive officers of Asarco and
Cyprus Amax unless the positions are changed with the approval of 75% of the
full board. The complaints also allege that, in addition to their persistent
refusals to negotiate with Phelps Dodge, Asarco and Cyprus Amax set their
shareholder meetings and record dates to favor their own merger and have
rewarded management with what Phelps Dodge believes are lavish compensation and
benefit packages. Phelps Dodge believes that these and other efforts undertaken
by the companies amount to an attempt to favor and entrench management at the
expense of shareholders. Phelps Dodge is seeking injunctive relief to remedy
these breaches of duty, including court orders declaring that the boards of
Asarco and Cyprus Amax failed to make good faith efforts to obtain information
about and adequately consider the Phelps Dodge proposal and compelling the
boards of those two companies to consider the proposal and remove impediments
preventing consideration of the proposal.
On September 7, 1999, the Superior Court of the State of New Jersey stayed
the New Jersey action, and Phelps Dodge thereafter filed an amended complaint in
the Delaware Chancery Court, naming Asarco and its directors as defendants and
seeking the same relief as that sought in the New Jersey action. The Delaware
Chancery Court has ordered expedited discovery, in which the parties are
currently engaged. The Chancery
39
<PAGE> 43
Court has scheduled a hearing on Phelps Dodge's motion for a preliminary
injunction, to be held in Wilmington, Delaware, on September 27, 1999.
ACCOUNTING TREATMENT
The acquisitions of both Asarco and Cyprus Amax would be accounted for
under the purchase method of accounting under U.S. generally accepted accounting
principles, which means that Asarco's and Cyprus Amax's results of operations
will be included with Phelps Dodge's from the closing date and their respective
consolidated assets and liabilities will be recorded at their fair values at the
same date.
REGULATORY MATTERS
The issuance of our stock in exchange for shares of Asarco or Cyprus Amax
requires the expiration or termination of the waiting period (and any extension
thereof) applicable to the business combination under the HSR Act.
Under the HSR Act, and the rules that have been promulgated thereunder (the
"Rules"), some acquisitions may not be consummated unless information has been
furnished to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the Federal Trade Commission (the "FTC") and some waiting period
requirements have been satisfied. The acquisition of Asarco or Cyprus Amax
shares pursuant to our offers is subject to the HSR Act. On September 10, 1999,
we filed with the Antitrust Division and the FTC Hart-Scott-Rodino Notification
and Report Forms with respect to our offers. Under the applicable provisions of
the HSR Act, the purchase of Asarco or Cyprus Amax shares under the offers
cannot be consummated until the expiration or termination of the waiting periods
that began when we filed those Forms. The initial waiting period under the HSR
Act is 30 days and expires, if not terminated earlier or extended, on October
10, 1999. Either the FTC or the Antitrust Division may issue a request for
additional information or documentary material, which will extend the waiting
period until 20 days after the compliance with such request. Federal and state
antitrust enforcement agencies frequently scrutinize under the antitrust laws
transactions such as our acquisitions of Asarco or Cyprus Amax shares pursuant
to our offers. At any time before or after we acquire Asarco or Cyprus Amax
shares, any such agency could take such action under the antitrust laws as it
deems necessary or desirable in the public interest, including seeking to enjoin
the acquisition of Asarco or Cyprus Amax shares pursuant to the offers or
otherwise or seeking divestiture of Asarco or Cyprus Amax shares acquired by us
or divestiture of assets of Phelps Dodge, Asarco and/or Cyprus Amax. Private
parties may also bring legal action under the antitrust laws under some
circumstances. Phelps Dodge, Asarco and Cyprus Amax conduct operations in a
number of jurisdictions where other regulatory filings or approvals may be
required or advisable in connection with the completion of our offers.
40
<PAGE> 44
MARKET PRICES AND DIVIDENDS
The Phelps Dodge common shares are listed and principally traded on the
NYSE under the symbol "PD". The Asarco common shares are listed and principally
traded on the NYSE under the symbol "AR". The Cyprus Amax common shares are
listed and principally traded on the NYSE under the symbol "CYM". The following
table sets forth, for the periods indicated, (1) the high and low last reported
prices per Phelps Dodge share, Asarco share and Cyprus Amax share, in each case
as reported on the New York Stock Exchange Composite Transaction Tape; and (2)
the cash dividends per Phelps Dodge share, Asarco share and Cyprus Amax share.
<TABLE>
<CAPTION>
PHELPS DODGE COMMON STOCK ASARCO COMMON STOCK
---------------------------------- ---------------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1997
First Quarter......... $79 $68 $0.50 $32 1/2 $25 1/8 $0.20
Second Quarter........ 89 5/8 70 1/4 0.50 32 1/2 26 1/8 0.20
Third Quarter......... 87 15/16 75 1/16 0.50 34 30 0.20
Fourth Quarter........ 79 13/16 59 7/8 0.50 31 7/8 21 3/4 0.20
1998
First Quarter......... $69 1/4 $58 1/16 $0.50 $26 3/4 $20 1/2 $0.20
Second Quarter........ 71 3/4 56 1/8 0.50 27 13/16 21 3/8 0.20
Third Quarter......... 62 9/16 43 7/8 0.50 24 15 7/16 0.20
Fourth Quarter........ 61 3/4 49 9/16 0.50 23 14 7/8 0.10
1999
First Quarter......... $61 5/16 $41 7/8 $0.50 $18 3/8 $13 11/16 $0.05
Second Quarter........ 70 5/8 48 7/8 0.50 19 1/4 13 7/16 0.05
Third Quarter (through
September 13)....... 66 3/4 55 15/16 0.50 22 3/4 17 1/2 0.05
<CAPTION>
CYPRUS AMAX COMMON STOCK
---------------------------------
HIGH LOW DIVIDEND
---- --- --------
<S> <C> <C> <C>
1997
First Quarter......... $24 7/8 $21 1/4 $0.20
Second Quarter........ 26 3/8 21 5/8 0.20
Third Quarter......... 26 13/16 22 3/8 0.20
Fourth Quarter........ 25 14 7/16 0.20
1998
First Quarter......... $17 7/8 $14 $0.20
Second Quarter........ 17 7/8 13 0.20
Third Quarter......... 13 13/16 9 3/16 0.20
Fourth Quarter........ 14 3/8 9 0.20
1999
First Quarter......... $13 1/8 $ 9 3/8 $0.20
Second Quarter........ 16 1/16 11 3/8 0.05
Third Quarter (through
September 13)....... 17 13/16 12 7/8 0.05
</TABLE>
On August 19, 1999, the last full trading day before Phelps Dodge publicly
announced its proposal to combine with Asarco and Cyprus Amax, the reported
high, low and closing prices per Phelps Dodge common share, Asarco common share
and Cyprus Amax common share were as follows:
<TABLE>
<CAPTION>
HIGH LOW CLOSE
---- --- -----
<S> <C> <C> <C>
Phelps Dodge................................................ 58 15/16 57 11/16 58 9/16
Asarco...................................................... 18 7/16 17 13/16 18 7/16
Cyprus Amax................................................. 14 1/2 13 1/2 14 1/2
</TABLE>
On September 13, 1999, the most recent practicable date prior to the filing
of this Proxy Statement, the reported closing prices per Phelps Dodge common
share, Asarco common share and Cyprus Amax common share were as follows:
$57 3/4, $21 3/4 and $17 7/16, respectively.
WE URGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS FOR PHELPS DODGE, ASARCO
AND CYPRUS AMAX COMMON SHARES.
41
<PAGE> 45
PHELPS DODGE SELECTED HISTORICAL FINANCIAL DATA
The following is a summary of selected consolidated financial data of
Phelps Dodge for each of the years in the five-year period ended December 31,
1998 and the six-month periods ended June 30, 1999 and 1998. This information is
derived from the selected audited financial data of Phelps Dodge contained in
Phelps Dodge's Annual Report on Form 10-K for the year ended December 31, 1998
and from the unaudited financial statements of Phelps Dodge contained in Phelps
Dodge's Quarterly Report on Form 10-Q for the period ended June 30, 1999, which
are incorporated by reference herein, and from Phelps Dodge's Quarterly Report
on Form 10-Q for the period ended June 30, 1998. See "Incorporation of Certain
Documents by Reference" on page 85. You should read this summary together with
these financial statements and their accompanying notes.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------- --------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Sales...................... $1,354 $1,593 $3,063 $3,914 $3,787 $4,185 $3,289
Operating income (loss).... (27)(a) 348(b) 423(c) 611(d) 713(e) 1,101(f) 400(g)
Earnings (loss) before
minority interests....... (61) 208 199 414 478 760 279
Minority interests......... -- (4) (8) (5) (16) (13) (8)
Net earnings (loss)........ (61) 204 191 409 462 747 271
Net earnings (loss) per
Common Share:
-- Basic............... $(1.04) $ 3.49 $ 3.28 $ 6.68 $ 7.02 $10.72 $ 3.84
-- Diluted............. $(1.04) $ 3.48 $ 3.26 $ 6.63 $ 6.98 $10.66 $ 3.82
Cash dividend per Common
Share.................... $ 1.00 $ 1.00 $ 2.00 $ 2.00 $ 1.95 $ 1.80 $ 1.69
BALANCE SHEET DATA
Cash and marketable
securities............... $ 144 $ 336 $ 222 $ 158 $ 470 $ 609 $ 287
Working capital............ 196 516 329 350 736 950 558
Total assets............... 4,902 5,061 5,037 4,965 4,816 4,646 4,134
Stockholders' Equity....... 2,373 2,621 2,587 2,510 2,756 2,678 2,188
OTHER FINANCIAL DATA
Book value per common
share.................... $40.91 $44.66 $44.68 $42.81 $42.59 $39.04 $30.95
Debt as a % of
capitalization(h)........ 30.5% 26.6% 27.6% 27.7% 18.8% 20.2% 23.6%
Cash provided from
operating activities..... $ 46 $ 109 $ 378 $ 765 $ 838 $ 959 $ 543
</TABLE>
- -------------------------
(a) Includes non-recurring restructuring charges of $83.0.
(b) Includes before-tax gain of $186.1 from the disposition of a 90 percent
interest in Accuride Corporation.
(c) Includes before-tax gain of $198.7 from the disposition of the 100 percent
interest in Accuride Corporation and a non-recurring, before-tax provision
of $7.8 for curtailments and indefinite closures primarily at Phelps Dodge
Mining Company.
42
<PAGE> 46
(d) Includes $45.9 charge primarily for additional provisions of $23.0 for
estimated future costs associated with environmental matters and $19.1 for a
voluntary early retirement program.
(e) Includes reclamation reserves of $10.0 for the court-ordered rescission of a
1986 sale of property in Maspeth, New York, by the Corporation to the United
States Postal Service.
(f) Includes before-tax gain of $26.8 from the disposition of a Phelps Dodge
Industries' operating facility.
(g) Includes $98.7 charge for environmental costs and a before-tax loss of $59.0
for the disposition of certain operating facilities and mining properties.
(h) Total capitalization includes Debt, Minority Interest and Stockholders'
Equity.
43
<PAGE> 47
ASARCO SELECTED HISTORICAL FINANCIAL DATA
The following is a summary of selected consolidated financial data of
Asarco for each of the years in the five-year period ended December 31, 1998 and
the six-month periods ended June 30, 1999 and 1998. This information is derived
from the Form S-4 Registration Statement filed by Asarco Cyprus Incorporated in
connection with the proposed Asarco-Cyprus Amax merger. This information is only
a summary and should be read together with the financial statements and
accompanying notes contained in Asarco's Annual Report on Form 10-K for the year
ended December 31, 1998, Asarco's Quarterly Report on Form 10-Q for the period
ended June 30, 1999 and Asarco's Quarterly Report on Form 10-Q for the period
ended June 30, 1998. See "Incorporation of Certain Documents by Reference" on
page 85.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------- ---------------------------
1999 1998 1998 1997 1996 1995(F) 1994
------ ------ ------ ------ ------ ------- ------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Sales.................... $ 966 $1,186 $2,233 $2,721 $2,717 $ 3,198 $2,032
Operating income
(loss)................. (49) (33) (118)(a) 275(b) 303(d) 487(g) 18(h)
Earnings (loss) before
minority interests..... (52) (31) (104) 234 226 299 65
Minority interests....... (4) (15) (27) (91) (88) (130) (1)
Net earnings (loss)...... (56) (46) (131) 143(c) 138(e) 169 64(i)
Earnings (loss) per
Common Share:
Net earnings (loss) --
Basic................ $(1.42) $(1.17) $(3.29) $ 3.42 $ 3.24 $ 4.00 $ 1.53
Net earnings (loss) --
Diluted.............. $(1.42) $(1.17) $(3.29) $ 3.42 $ 3.23 $ 3.98 $ 1.52
Cash Dividend per Common
Share.................. $ 0.10 $ 0.40 $ 0.70 $ 0.80 $ 0.80 $ 0.70 $ 0.40
BALANCE SHEET DATA
Cash and marketable
securities............. $ 156 $ 285 $ 216 $ 416 $ 193 $ 281 $ 18
Working capital.......... 335 502 502 726 511 565 282
Total assets............. 3,977 4,020 4,024 4,110 4,120 4,327 3,291
Inventories -- replacement
cost in excess of LIFO
inventory costs........ 80 78 74 86 115 137 143
Stockholders' Equity..... 1,459 1,623 1,525 1,694 1,737 1,707 1,517
OTHER FINANCIAL DATA
Book value per common
share.................. $36.68 $40.92 $38.45 $42.71 $40.56 $40.11 $36.04
Debt as a % of
capitalization (j)..... 34.8% 30.0% 33.7% 28.3% 26.7% 34.1% 38.1%
Debt as a % of
capitalization, net of
excess cash (j)........ 32.4% 24.3% 30.0% 20.2% 24.1% 32.1% 38.1%
Cash provided from (used
for) operating
activities............. $ 74 $ 65 $ 62 $ 321 $ 267 $ 489 $ (10)
</TABLE>
- -------------------------
(a) Includes charges of $20.0 to reflect the effect of the sale of Asarco's
Missouri Lead Division and $10.0 related to Southern Peru Copper
Corporation's $30.0 cost reduction program. Includes charges of $9.5 for the
three year suspension of
44
<PAGE> 48
operations at Asarco's copper smelter in El Paso, Texas, $9.8 to write down
the book value and provide for the closure costs of Asarco's Black Cloud
lead-zinc mine in Leadville, Colorado, $10.9 for the transfer of Southern
Peru Copper Corporation's ownership of the Ilo townsite to its worker
occupants and the city of Ilo, Peru and $7.7 to increase reserves for
certain employee benefit plans and for severance and other costs related to
Asarco's cost reduction program. Includes a charge of $33.2 ($54 in charges
offset by $20.8 in anticipated insurance and other recoveries) to increase
reserves for closed plants and environmental matters.
(b) Environmental charges of $22.1 in 1997, include charges of $30.0 offset
entirely by anticipated insurance recoveries.
(c) Includes a $47.6 after-tax gain ($73.3 pre-tax) from the sale of shares of
Grupo Mexico, S.A. de C.V.
(d) Includes a $15.0 charge ($67.7 in charges offset by $52.7 in insurance
settlements and other recoveries) for closed plant and environmental
matters.
(e) Includes a $39.0 after-tax gain ($60.1 pre-tax) from the sale of Asarco's
remaining interest in MIM and a $7.2 after-tax gain ($11.1 pre-tax) from the
sale of a 25% interest in Asarco's Silver Bell project.
(f) On April 5, 1995, ASARCO acquired an additional 10.7% interest in Southern
Peru Copper Corporation for $116.4 increasing its ownership from 52.3% to
63%. The additional shares acquired enabled Asarco to elect a majority of
the directors of Southern Peru Copper Corporation. As a result, Asarco has
consolidated Southern Peru Copper Corporation in its financial statements
based on its 52.3% ownership, effective January 1, 1995, and 63% ownership,
effective April 5, 1995. Asarco previously accounted for its investment in
Southern Peru Copper Corporation by the equity method. As of June 30, 1999,
Asarco's ownership interest in Southern Peru Copper Corporation was 54.3%.
(g) Includes a $139.4 charge to add to Asarco's reserve for closed plant and
environmental matters, to provide for asset impairments and plant closures
and to write down certain in-process inventory to net realizable value.
(h) Includes a $65.5 pre-tax charge to add to Asarco's reserve for closed plant
and environmental matters.
(i) Includes a $31.9 after-tax gain ($58.5 pre-tax) from the sale of Asarco's
remaining interest in Asarco Australia Limited.
(j) Total capitalization includes Debt, Minority Interest and Stockholders'
Equity.
45
<PAGE> 49
CYPRUS AMAX SELECTED HISTORICAL FINANCIAL DATA
The following is a summary of selected consolidated financial data of
Cyprus Amax for each of the years in the five-year period ended December 31,
1998 and the six-month periods ended June 30, 1999 and 1998. This information is
derived from the Form S-4 Registration Statement filed by Asarco Cyprus
Incorporated in connection with the proposed Asarco-Cyprus Amax merger. This
information is only a summary and should be read together with the financial
statements and accompanying notes contained in Cyprus Amax's Annual Report on
Form 10-K for the year ended December 31, 1998, Cyprus Amax's Quarterly Report
on Form 10-Q for the period ended June 30, 1999 and Cyprus Amax's Quarterly
Report on Form 10-Q for the period ended June 30, 1998. See "Incorporation of
Certain Documents by Reference" on page 85.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(a)
Revenue.......................... $ 561 $ 870 $1,661 $1,978 $1,584 $1,908 $1,540
Operating income (loss).......... (13) 18 52 249 63 485 202
Income (loss) from Continuing
Operations(b).................. (77) (53) (134) 89 15 367 104
Net Income (loss)(c)............. (74) (32) (75) 69 77 124 175
Earnings (loss) per Common Share:
Income (loss) from Continuing
Operations(b)................ $(0.95) $(0.67) $(1.65) $ 0.76 $(0.04) $ 3.75 $ 0.92
Net earnings (loss)(c)......... $(0.92) $(0.44) $(1.02) $ .54 $ 0.62 $ 1.13 $ 1.69
Cash Dividend per Common Share... $ 0.25 $ 0.40 $ 0.80 $ 0.80 $ 0.80 $ 0.80 $ 0.90
BALANCE SHEET DATA
Cash and Cash Equivalents........ $1,275 $ 180 $ 353 $ 250 $ 193 $ 191 $ 139
Working capital.................. 970 232 250 297 304 292 423
Total assets..................... 4,746 5,441 5,341 6,459 6,786 6,196 5,407
Long-Term Debt and Capital Lease
Obligations.................... 1,525 1,791 1,718 2,202 2,554 1,877 1,391
Stockholders' Equity............. 2,059 2,264 2,157 2,330 2,360 2,365 2,329
OTHER FINANCIAL DATA
Book Value Per Common Share...... $20.17 $22.21 $21.32 $22.99 $23.43 $23.62 $23.39
Long-Term Debt/Total
Capitalization(d).............. 42.3% 43.8% 43.9% 46.9% 50.4% 42.6% 37.4%
Net Long-Term Debt/Total
Capitalization(d)(e)........... 10.7% 41.2% 38.4% 44.0% 48.4% 40.0% 34.9%
Cash Provided by Operating
Activities..................... $ 47 $ 129 $ 237 $ 481 $ 440 $ 675 $ 110
</TABLE>
- -------------------------
(a) The Cyprus Amax historical consolidated income statement data has been
restated to reflect the Domestic Coal Division as a Discontinued Operation
due to its sale effective June 30, 1999.
(b) Income (loss) from Continuing Operations reflects net after-tax copper
charges of $94 for environmental remediation liabilities and write-downs,
net after-tax gains of $123 from the sale of the lithium business, an
Oakbridge coal mine in Australia, and real
46
<PAGE> 50
estate, a net after-tax charge of $22 for legal settlements, a net after-tax
charge of $37 for Cyprus Amax's share of the Kinross asset impairment and
the sale by Kinross of the pre-merger Amax Gold hedging portfolio, and an
after-tax charge of $4 for various special items in 1998; an after-tax
charge of $13 for the write-down of Oakbridge's Clarence mine in Australia,
favorable tax adjustments of $38, an after-tax gain of $19 on the sale of
Kubaka to Amax Gold, and an after-tax charge of $5 for the costs of
redeeming the 9 7/8% Notes in 1997; an after-tax charge of $74 for
environmental remediation liabilities, costs to temporarily close a copper
mine, the write-down of the net assets of the Guanaco gold mine, and an
unrelated favorable tax adjustment for Amax Gold in 1996; an after-tax
charge of $4 to write-down assets of an Oakbridge mine in Australia in 1995;
and an after-tax gain of $21 for various special items in 1994.
(c) Discontinued Operations for the six months ended June 30, 1999 included
earnings from the domestic coal business of $16 after-tax and a $13
after-tax loss on the sale of the coal assets. In addition, for the six
months ended June 30, 1998 and for the years 1994 through 1998, the results
have been restated to reflect the Domestic Coal Division as a discontinued
operation. Discontinued Operations included for the six months ended 1998
after-tax earnings of $21; after-tax earnings of $59 that reflects a loss on
the sale of certain eastern and midwestern coal properties of $12 and
favorable legal settlements of $5 for 1998; after-tax loss of $20 that
reflects charges of $66 for write-downs for 1997; after-tax earnings of $62
for 1996; after-tax loss of $243 that reflects a charge of $334 for the
write-down of certain coal assets and provisions for associated liabilities
for 1995; and after-tax earnings of $62 that reflects a write-down of $8 for
the Orchard Valley mine for 1994. Also in 1994 Discontinued Operations
included income from the Oil and Gas business for the first quarter of 1994
of $7 after-tax and a $2 after-tax gain on the sale of Cyprus Amax-owned oil
and gas assets.
(d) Total Capitalization includes Debt, Minority Interest and Stockholders'
Equity.
(e) Net Long-Term Debt includes Long-Term Debt less Cash and Cash Equivalents.
47
<PAGE> 51
COMPARATIVE PER SHARE DATA
The following table presents historical per common share information for
Phelps Dodge, Asarco and Cyprus Amax, and the pro forma and equivalent pro forma
per common share data giving effect to the combination of Phelps Dodge and
Asarco, Phelps Dodge and Cyprus Amax and Phelps Dodge, Asarco and Cyprus Amax,
for the six months ended June 30, 1999 and the year ended December 31, 1998. The
pro forma combined per share information does not purport to represent what the
combined financial position or results of operations would actually have been if
the combinations had occurred at January 1, 1998, nor are they necessarily
indicative of Phelps Dodge's future consolidated results of operations or
financial position. The information tabled below should be read in conjunction
with the historical financial statements of the combining corporations
incorporated by reference in this Proxy Statement, the "Selected Historical
Financial Data" of Phelps Dodge, Asarco and Cyprus Amax on pages 41 through 46,
and the "Unaudited Pro Forma Combined Financial Information" on page 49.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Per common share
Historical:
Phelps Dodge
Book value(1)............................ $40.91 $44.68
Net income(loss)
Basic................................. (0.98) 3.28
Diluted............................... (0.98) 3.26
Cash dividends........................... 1.00 2.00
Asarco
Book value(1)............................ 36.68 38.45
Net income(loss)
Basic................................. (1.42) (3.29)
Diluted............................... (1.42) (3.29)
Cash dividends........................... 0.10 0.70
Cyprus Amax
Book value(1)............................ 20.17 21.32
Net income(loss)
Basic................................. (0.95) (1.65)
Diluted............................... (0.95) (1.65)
Cash dividends........................... 0.25 0.80
Pro forma:
Combined Phelps Dodge and Asarco
Book value(1)............................ 46.64 50.46
Income(loss) from continuing operations
Basic................................. (1.24) 1.40
Diluted............................... (1.24) 1.39
Cash dividends(2)........................ 1.00 2.00
</TABLE>
48
<PAGE> 52
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Asarco Equivalent(3)
Book value(1)............................ 19.11 20.68
Income(loss) from continuing
operations--Basic and Diluted......... (0.51) 0.57
Cash dividends........................... 0.41 0.82
Combined Phelps Dodge and Cyprus Amax
Book value(1)............................ 46.74 50.45
Income(loss) from continuing
operations--Basic and Diluted......... (1.62) 0.24
Cash dividends(2)........................ 1.00 2.00
Cyprus Amax Equivalent(3)
Book value(1)............................ 14.65 15.82
Income(loss) from continuing
operations--Basic and Diluted......... (0.51) 0.08
Cash dividends........................... 0.31 0.63
Combined Phelps Dodge, Asarco and Cyprus
Amax
Book value(1)............................ 49.95 53.72
Income(loss) from continuing
operations--Basic and Diluted......... (1.67) (0.57)
Cash dividends(2)........................ 1.00 2.00
Asarco Equivalent(3)
Book value(1)............................ 20.47 22.01
Income(loss) from continuing
operations--Basic and Diluted......... (0.68) (0.23)
Cash dividends........................... 0.41 0.82
Cyprus Amax Equivalent(3)
Book value(1)............................ 15.66 16.84
Income(loss) from continuing
operations--Basic and Diluted......... (0.52) (0.18)
Cash dividends........................... 0.31 0.63
</TABLE>
- -------------------------
(1) Book value per share is determined as at June 30, 1999 and December 31,
1998.
(2) Pro forma combined cash dividends per share of Phelps Dodge common stock
reflect Phelps Dodge's historical dividend rate per share declared in the
periods presented.
(3) Pro forma combined equivalent per share of Asarco and Cyprus Amax common
stocks reflects the pro forma combined per share of Phelps Dodge's common
stock amount multiplied by the exchange ratio of 0.4098 and 0.3135 of Phelps
Dodge stock for each share of Asarco and Cyprus Amax respectively.
49
<PAGE> 53
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma Combined Financial Information of Phelps Dodge
presented following is derived from the historical consolidated financial
statements of Phelps Dodge, Asarco and Cyprus Amax. The Unaudited Pro Forma
Combined Financial Information is presented under three separate scenarios
(collectively the "Transactions"): (i) the acquisition by Phelps Dodge of Asarco
and Cyprus Amax; (ii) the acquisition by Phelps Dodge of Asarco; and (iii)
acquisition by Phelps Dodge of Cyprus Amax. The acquisitions of Asarco and
Cyprus Amax are not dependent upon each other. Under each of the scenarios, the
Unaudited Pro Forma Combined Financial Information is prepared using the
purchase method of accounting, with Phelps Dodge treated as the acquirer and as
if the transactions had been completed as of January 1, 1998, for statement of
operations purposes and on June 30, 1999, for balance sheet purposes.
The Unaudited Pro Forma Combined Financial Information is based upon the
historical financial statements of Phelps Dodge, Asarco and Cyprus Amax adjusted
to give effect to the proposed business combinations. The pro forma assumptions
and adjustments for each transaction scenario are described in the accompanying
notes presented on the following pages. The assumptions and related pro forma
adjustments have been developed from information available to Phelps Dodge from
the December 31, 1998, Form 10-K filings and June 30, 1999, Form 10-Q filings of
Asarco and Cyprus Amax and the Form 8-K filing dated June 30, 1999, of Cyprus
Amax. Such pro forma adjustments have been included only to the extent known and
reasonably available to Phelps Dodge.
Phelps Dodge also has reviewed the Form S-4 Registration Statement of
Asarco Cyprus Incorporated filed on August 20, 1999, in connection with the
proposed merger of Asarco and Cyprus Amax. Their filing included unaudited pro
forma combined financial information for Asarco and Cyprus Amax as if the merger
had occurred at specific assumed dates. Certain pro forma adjustments that
Phelps Dodge noted in reviewing this unaudited pro forma combined financial
information have not been incorporated in the accompanying Unaudited Pro Forma
Combined Financial Information because information necessary to make or assess
such adjustments is not available to Phelps Dodge.
As a consequence of the nature of the Transactions, there may be, and
likely will be, actions and other events or changes initiated by Asarco and/or
Cyprus Amax that would significantly change purchase prices and purchase price
allocations. Also, Phelps Dodge has not had access to additional proprietary and
confidential corporate financial and other information of Asarco and Cyprus Amax
and has not had an opportunity to undertake any due diligence procedures. Such
information and procedures may provide Phelps Dodge with additional information
that could materially affect the purchase price paid for the acquisition of
Asarco or Cyprus Amax, the purchase price allocation and, accordingly, the
assumptions and pro forma adjustments. Identified factors which may have a
significant impact on the basis and results of the combinations are described in
Note 2 of the accompanying notes to the Unaudited Pro Forma Combined Balance
Sheet and Combined Statements of Operations for each scenario.
Furthermore, the ultimate determination of the purchase price paid for the
acquisition of Cyprus Amax and Asarco may change significantly from the current
estimate. For the purpose of this Unaudited Pro Forma Combined Financial
Information, the purchase price has been estimated based upon the market price
of $58.6875 for each Phelps Dodge common share, that being the last quoted price
at the moment Asarco and Cyprus Amax trading was halted on August 20, 1999. The
final purchase price will be based largely upon
50
<PAGE> 54
the average market price of Phelps Dodge common stock at the earlier of the
dates the combinations are announced or consummated between Phelps Dodge, Asarco
and Cyprus Amax. As a result of these uncertainties, the final determination and
allocation of purchase price may differ from the amounts assumed in this
Unaudited Pro Forma Combined Financial Information and those differences may be
material.
The Unaudited Pro Forma Combined Financial Information is provided for
illustrative purposes only and does not purport to represent what the actual
consolidated results of operations or the consolidated financial positions of
Phelps Dodge would have been had the acquisitions of Asarco and/or Cyprus Amax
occurred on the respective dates assumed, nor is it necessarily indicative of
future consolidated operating results or financial position.
The Unaudited Pro Forma Combined Financial Information does not include the
realization of cost savings from operating efficiencies, synergies or other
restructurings resulting from the Transactions and does not contemplate the
liabilities that may be incurred in any related restructurings. Phelps Dodge
estimated consolidated annual cash cost savings of at least $200 million as a
result of synergies, reduced overhead costs and other actions resulting from the
combination of all three companies. Phelps Dodge believes that the Transactions
and the resulting activities would yield substantial cash cost savings of at
least $75 million beyond those that can be realized by Asarco Cyprus
Incorporated which were estimated to be $125 million in the Form S-4
Registration Statement of Asarco Cyprus Incorporated filed on August 20, 1999.
There is no assurance that these cost savings can or will be realized.
This Unaudited Pro Forma Combined Financial Information should be read in
conjunction with the separate historical consolidated financial statements and
accompanying notes of Phelps Dodge, Asarco and Cyprus Amax that are incorporated
by reference in this Proxy Statement. You should not rely on the Unaudited Pro
Forma Combined Financial Information as an indication of the consolidated
results of operations or financial position that would have been achieved if the
business combinations had taken place earlier or of the consolidated results of
operations or financial position of Phelps Dodge after the completion of such
transactions.
51
<PAGE> 55
PHELPS DODGE CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
PHELPS DODGE, ASARCO AND CYPRUS AMAX COMBINED
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------- PRO FORMA PRO FORMA
PHELPS DODGE ASARCO CYPRUS AMAX ADJUSTMENTS COMBINED
------------ ------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Sales and other operating revenues.... $1,354 966 561 -- 2,881
------ ----- --- ------ -----
Operating costs and expenses
Cost of products sold............... 1,073 855 428 -- 2,356
Depreciation, depletion and
amortization..................... 144 73 104 (41)(H) 280
Selling and general administrative
expense.......................... 60 72 34 -- 166
Exploration and research expense.... 21 11 8 -- 40
Non-recurring charges and provision
for asset dispositions*.......... 83 4 -- -- 87
------ ----- --- ------ -----
1,381 1,015 574 (41) 2,929
------ ----- --- ------ -----
Operating income (loss)............... (27) (49) (13) 41 (48)
Interest expense.................... (48) (38) (69) (9)(D)
(4)(A)
(3)(J) (171)
Capitalized interest................ -- -- 2 4(A) 6
Miscellaneous income and expense,
net.............................. (7) 10 (11) (1)(I)
6(A) (3)
------ ----- --- ------ -----
Income (loss) before taxes, minority
interests and equity in net earnings
of affiliated companies............. (82) (77) (91) 34 (216)
Provision for taxes on income....... 19 25 14 (1)(A)
(10)(E) 47
Minority interests in consolidated
subsidiaries..................... 1 (4) -- 1(I) (2)
Equity in net earnings (losses) of
affiliated companies............. 5 -- -- (5)(A) --
------ ----- --- ------ -----
Income (loss) from continuing
operations.......................... (57) (56) (77) 19 (171)
Preferred stock dividends........... -- -- (9) 9(D) --
------ ----- --- ------ -----
Income (loss) from continuing
operations applicable to common
shares.............................. $ (57) (56) (86) 28 (171)
====== ===== === ====== =====
Net earnings (loss) per share
Basic............................... $(0.98) (1.67)
Diluted............................. $(0.98) (1.67)
Weighted average shares outstanding
Basic............................... 57.8 102.5
Diluted............................. 57.8 102.5
</TABLE>
- -------------------------
* See historical financial statements incorporated by reference in this Proxy
Statement for a description of non-recurring charges and provision for asset
dispositions.
52
<PAGE> 56
PHELPS DODGE CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
PHELPS DODGE, ASARCO AND CYPRUS AMAX COMBINED
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------- PRO FORMA PRO FORMA
PHELPS DODGE ASARCO CYPRUS AMAX ADJUSTMENTS COMBINED
------------ ------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Sales and other operating revenues.... $3,064 2,233 1,660 (218)(A) 6,739
------ ----- ----- ------- ------
Operating costs and expenses
Cost of products sold............... 2,361 1,963 1,087 (200)(A) 5,211
Depreciation, depletion and
amortization...................... 293 145 254 (7)(A)
(80)(H) 605
Selling and general administrative
expense........................... 123 144 105 -- 372
Exploration and research expense.... 55 27 45 -- 127
Non-recurring charges and provision
for asset dispositions*........... (191) 72 118 -- (1)
------ ----- ----- ------- ------
2,641 2,351 1,609 (287) 6,314
------ ----- ----- ------- ------
Operating income (loss)............... 423 (118) 51 69 425
Interest expense.................... (97) (68) (157) (19)(D)
(13)(A)
(5)(J) (359)
Capitalized interest................ 2 -- 2 13(A) 17
Miscellaneous income and expense,
net............................... 9 29 17 (6)(I)
(4)(A) 45
------ ----- ----- ------- ------
Income (loss) before taxes, minority
interests and equity in net earnings
of affiliated companies............. 337 (157) (87) 35 128
Provision for taxes on income....... (134) 53 (11) (16)(E) (108)
Minority interests in consolidated
subsidiaries...................... (8) (27) 1 8(I) (26)
Equity in net earnings (losses) of
affiliated companies.............. (4) -- (53) 4(A) (53)
------ ----- ----- ------- ------
Income (loss) from continuing
operations.......................... 191 (131) (150) 31 (59)
Preferred stock dividends........... -- -- (19) 19(D) --
------ ----- ----- ------- ------
Income (loss) from continuing
operations applicable to common
shares.............................. $ 191 (131) (169) 50 $ (59)
====== ===== ===== ======= ======
Net earnings (loss) per share
Basic............................... $ 3.28 (0.57)
Diluted............................. $ 3.26 (0.57)
Weighted average shares outstanding
Basic............................... 58.2 102.9
Diluted............................. 58.5 102.9
</TABLE>
- -------------------------
* See historical financial statements incorporated by reference in this Proxy
Statement for a description of non-recurring charges and provision for asset
dispositions.
53
<PAGE> 57
PHELPS DODGE CORPORATION
PRO FORMA COMBINED BALANCE SHEET
PHELPS DODGE, ASARCO AND CYPRUS AMAX COMBINED
JUNE 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------- PRO FORMA PRO FORMA
PHELPS DODGE ASARCO CYPRUS AMAX ADJUSTMENTS COMBINED
------------ ------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.................... $ 144 125 1,275 (30)(B)
(5)(D) 1,509
Accounts receivable, net..................... 396 404 37 -- 837
Inventories.................................. 263 305 239 (127)(A)
84(C) 764
Supplies..................................... 104 -- 55 127(A) 286
Prepaid expenses and other assets............ 15 135 74 5(C)
(33)(A) 196
Deferred income taxes........................ 45 -- 32 33(A) 110
------ ----- ----- ------ ------
Current assets............................. 967 969 1,712 54 3,702
Investments and long-term accounts
receivable................................. 95 190 328 29(C)
(13)(I)
9(A) 638
Property, plant and equipment, net........... 3,501 2,592 2,546 (1,037)(C) 7,602
Other assets and deferred charges............ 339 226 160 (9)(A)
5(D) 721
------ ----- ----- ------ ------
Total Assets.......................... $4,902 3,977 4,746 (962) 12,663
====== ===== ===== ====== ======
LIABILITIES
Short-term debt.............................. $ 214 16 249 -- 479
Current portion of long-term debt............ 62 31 79 -- 172
Accounts payable and accrued expenses........ 456 496 324 -- 1,276
Dividends payable............................ 29 -- 9 -- 38
Accrued income taxes......................... 11 90 81 -- 182
------ ----- ----- ------ ------
Current liabilities.......................... 772 633 742 -- 2,147
Long-term debt............................... 801 1,017 1,499 244(D)
(95)(C) 3,466
Deferred income taxes........................ 493 28 14 (253)(E) 282
Other liabilities and deferred credits....... 376 306 412 52(C) 1,146
------ ----- ----- ------ ------
2,442 1,984 2,667 (52) 7,041
------ ----- ----- ------ ------
Minority interests in consolidated
subsidiaries................................. 86 534 20 (147)(I) 493
------ ----- ----- ------ ------
Common shareholders' equity
Common shares................................ 362 525 1 (526)(G)
279(F) 641
Treasury shares.............................. -- -- (86) 86(A) --
Preferred shares............................. -- -- 5 (5)(D) --
Capital in excess of par value............... 5 -- 2,912 (86)(A)
(2,826)(G)
2,342(F) 2,347
Retained earnings............................ 2,198 949 (768) 134(I)
(181)(G) 2,332
Accumulated other comprehensive income
(loss)..................................... (183) (15) (5) 20(G) (183)
Other........................................ (8) -- -- -- (8)
------ ----- ----- ------ ------
Total Shareholders' Equity............ 2,374 1,459 2,059 (763) 5,129
------ ----- ----- ------ ------
Total Liabilities and Shareholders'
Equity.............................. $4,902 3,977 4,746 (962) 12,663
====== ===== ===== ====== ======
</TABLE>
54
<PAGE> 58
COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Financial Information has been derived
from historical consolidated financial statements of Phelps Dodge, Asarco and
Cyprus Amax incorporated by reference into this Proxy Statement. See Phelps
Dodge "Unaudited Pro Forma Combined Financial Information" on page 49 of this
Proxy Statement.
The assumptions and related pro forma adjustments described below have been
developed from public historical information available to Phelps Dodge. Pro
forma adjustments have been included only to the extent known and reasonably
available to Phelps Dodge. Additional information may exist that could
materially affect the assumptions and related pro forma adjustments. Such
information is not available to Phelps Dodge because it is within the particular
and singular knowledge of Asarco and Cyprus Amax.
2. THE OFFER
Phelps Dodge is proposing a three-way business combination of Phelps Dodge,
Asarco and Cyprus Amax through separate offerings to exchange all the issued and
outstanding Asarco and Cyprus Amax common shares for Phelps Dodge common shares.
Phelps Dodge proposes to exchange all the issued and outstanding Asarco and
Cyprus Amax common shares for Phelps Dodge common shares at an exchange ratio of
0.4098 Phelps Dodge common share for each Asarco common share and an exchange
ratio of 0.3135 Phelps Dodge common share for each Cyprus Amax common share.
The transactions would be accounted for under the purchase method. The
purchase price for the business combinations is estimated as follows (dollars in
millions and shares in thousands except per share data):
<TABLE>
<CAPTION>
ASARCO CYPRUS AMAX COMBINED
------ ----------- --------
<S> <C> <C> <C>
Common shares outstanding (as reported in
June 30, 1999, Form 10-Qs)................. 39,783 90,454
Exchange offer ratio of Phelps Dodge common
shares for each common share............... 0.4098 0.3135
Phelps Dodge common shares to be issued...... 16,303 28,357 44,660
Market price of each Phelps Dodge common
share on August 20, 1999, prior to trading
halt....................................... $58.6875
========
Fair value of Phelps Dodge common shares
issued, comprising par value of $279 ($6.25
per share) and capital in excess of par of
$2,342..................................... $ 2,621
Redemption of Cyprus Amax Series A Preferred
Stock (Note 3D)............................ 244
Estimated transaction costs.................. 30
--------
Purchase price............................... $ 2,895
========
</TABLE>
The final purchase price could change materially from the purchase price
estimated above as a result of changes in the market price of common shares of
Phelps Dodge
55
<PAGE> 59
COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
and/or the relative market price of Asarco and Cyprus Amax common shares. There
are arrangements in place at Asarco and Cyprus Amax that could impact the
purchase price including employment agreements, change of control agreements,
severance agreements, restricted stock awards, stock appreciation rights, and
certain pension and other employee benefit plans. In addition, actions may be
taken by the management of Asarco and Cyprus Amax, in a defensive posture or for
other reasons, that could impact the purchase price including amending existing
agreements or issuing stock options and other similar bonus awards. The
potential impact of these factors cannot be estimated but could be material.
The estimated purchase price does not give effect to outstanding stock
options which could impact the number of Phelps Dodge shares issued and/or the
purchase price either by their exercise or their conversion to outstanding stock
options of Phelps Dodge. Such effects prior to completion of the business
combination cannot be reasonably estimated from available public information. As
reported in their December 31, 1998, Form 10-Ks, Asarco and Cyprus Amax had
1,721,249 and 6,346,801 stock options outstanding, respectively. Cyprus Amax had
2,024,009 outstanding stock options with weighted average exercise prices less
than the per share equivalent value of Cyprus Amax common stock as determined by
the terms of the exchange offer. Asarco's stock options had an average exercise
price of $26.12, more than the per share equivalent value of Asarco's common
stock as determined by the exchange offer. If Cyprus Amax's 2,024,009 stock
options and all of Asarco's outstanding stock options were exercised prior to
consummation of the business combinations, the estimated purchase price would be
increased by approximately $78 million which would be substantially offset by
cash and cash equivalents received as proceeds from such exercises. Although it
is Phelps Dodge's desire that all outstanding Asarco and Cyprus Amax stock
options be converted to Phelps Dodge stock options at the respective offering
exchange ratio, it is not assured whether such conversions can be achieved in
whole or in part nor, consequently, the potential effect on the purchase price.
The estimated purchase price does not include any effect of Cyprus Amax's
outstanding preferred share purchase rights or Asarco's Shareholder Rights Plan.
As described in its December 31, 1998, Form 10-K, Cyprus Amax issued in February
1999 one preferred purchase right for each share of common stock which confers
certain rights to the holder including certain rights in the event of an
acquisition of 15% or more of Cyprus Amax's common stock. As described in
Asarco's December 31, 1998, Form 10-K, Asarco adopted a new Shareholder Rights
Plan in January 1998 that provides certain common stock purchase rights if a
person or group becomes the beneficial owner of 15% or more of Asarco's common
stock, with certain exceptions.
The final determination of the purchase price may differ from the amount
assumed in the Unaudited Pro Forma Combined Financial Information and that
difference may be material.
3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
The following assumptions and related pro forma adjustments give effect to
the proposed business combinations of Phelps Dodge, Asarco and Cyprus Amax as if
such combinations occurred on January 1, 1998, in the Unaudited Pro Forma
Combined Statements of Operations for the six-month interim period ended June
30, 1999, and for
56
<PAGE> 60
COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
the year ended December 31, 1998, respectively, and on June 30, 1999, for the
Unaudited Pro Forma Combined Balance Sheet.
The Unaudited Pro Forma Combined Financial Information is provided for
illustrative purposes only and does not purport to represent what the actual
consolidated results of operations or the consolidated financial position of
Phelps Dodge would have been had the business combinations with Asarco and
Cyprus Amax occurred on the respective dates assumed, nor is it necessarily
indicative of future consolidated operating results or financial position.
Future cash cost savings, which Phelps Dodge estimated will be at least
$200 million annually, are not recognized in this Unaudited Pro Forma Combined
Financial Information. Non-recurring items related to 1998 and the six-month
interim period ended June 30, 1999, are included (see "Selected Historical
Financial Data" at pages 41 through 46 for a summary of non-recurring items and
special charges).
(A) Reclassifications have been made to the Asarco and Cyprus Amax
historical consolidated financial information to conform to Phelps Dodge's
presentation. The historical financial information of Cyprus Amax excludes
the results of operations and assets of its discontinued Coal segment as
reported for 1998 operations in Cyprus Amax's Form 8-K dated June 30, 1999,
and as reported as of and for the six months ended June 30, 1999, in its
Form 10-Q filing for such period. Cyprus Amax's historical financial
information for the year ended December 31, 1998, also has been adjusted to
exclude the identifiable results of recurring operations of its Lithium
segment which was sold in October 1998.
57
<PAGE> 61
COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
BALANCE SHEET SIX MONTHS YEAR ENDED
AT JUNE 30, ENDED JUNE 30, DECEMBER 31,
(IN $ MILLIONS): 1999 1999 1998
- ---------------------------- ------------- -------------- ------------
<S> <C> <C> <C>
Asarco reclassification
adjustments:
Inventories............... (127)
Supplies.................. 127
Deferred income taxes
(current asset)........ 33
Prepaid expenses and other
assets................. (33)
Miscellaneous income and
expense, net........... (2) (4)
Equity in net earnings of
affiliated companies... 2 4
Interest expense.......... 4 13
Capitalized interest...... (4) (13)
Cyprus Amax reclassification
adjustments:
Investments and notes
receivable............. 9
Other assets and deferred
charges................ (9)
Treasury shares........... 86
Capital in excess of par
value.................. (86)
Miscellaneous income and
expense, net........... 8
Provision for taxes on
income................. (1)
Equity in net earnings
(losses) of affiliated
companies.............. (7)
Elimination of recurring
results from the disposed
Cyprus Amax Lithium
segment:
Sales and other
revenues............... (218)
Cost of products sold
(derived).............. (200)
Depreciation, depletion
and amortization
expense................ (7)
</TABLE>
(B) Phelps Dodge estimates it will incur approximately $30 million of
transaction costs, consisting primarily of investment bankers, attorneys
and accountant fees, and financial printing and other charges. These
estimates are preliminary and therefore are subject to change.
(C) If the business combinations are consummated, they will be
accounted for using the purchase method of accounting in accordance with
generally accepted
58
<PAGE> 62
COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
accounting principles. Accordingly, the assets and liabilities of Asarco
and Cyprus Amax would be recorded at their estimated fair values.
Phelps Dodge has not had access to information that is within the
peculiar knowledge of Asarco and Cyprus Amax and has not performed its due
diligence necessary to determine the fair value of their assets or
liabilities or to identify unknown liabilities or obligations. Pro forma
adjustments to allocate the purchase price have been recorded in the
Unaudited Pro Forma Combined Financial Information on the basis of fair
values reported for certain assets and liabilities in public information of
Asarco and Cyprus Amax. Because fair value information for the remaining
assets and liabilities and any possible identifiable intangible assets are
not reasonably available to Phelps Dodge, the excess of the historical net
book values of Asarco's and Cyprus Amax's assets acquired over the
estimated purchase price has been allocated as a reduction of their
combined net property, plant and equipment.
Additionally, Phelps Dodge believes that cost savings will be realized
upon the consolidation and integration of the three companies. Phelps Dodge
has not developed formal plans for combining the three operations.
Accordingly, additional liabilities may be incurred in connection with the
business combinations and any ultimate restructuring. These additional
liabilities and costs have not been contemplated in the Unaudited Pro Forma
Combined Financial Information because information necessary to reasonably
estimate such costs and to formulate detailed restructuring plans is not
available to Phelps Dodge. Accordingly, the allocation of the purchase
price cannot be estimated with a reasonable degree of accuracy and may
differ materially from the amounts assumed in the Unaudited Pro Forma
Combined Financial Information.
The pro forma purchase price allocation adjustments are estimated as
follows (in millions):
<TABLE>
<S> <C>
Reduction of debt to fair value (as reported in Cyprus
Amax's June 30, 1999, Form 10-Q and the Form S-4
Registration Statement of Asarco Cyprus Incorporated
filed August 20, 1999)............................... $ 95
Restricted investment in Grupo Mexico (as reported in
Asarco's December 31, 1998, Form 10-K)............... $ 29
Increase in LIFO based inventory to replacement cost
(as reported in Asarco's June 30, 1999, Form 10-Q and
in Cyprus Amax's December 31, 1998, Form 10-K)....... $ 84
Excess projected benefit obligation over the fair value
of pension plan assets (as reported in Cyprus Amax's
December 31, 1998, Form 10-K, comprising a $5 million
reduction of prepaid expenses and other assets and a
$52 million increase in other liabilities and
deferred credits).................................... $ 57
Excess fair value of pension plan assets over the
projected benefit obligation (as reported in Asarco's
December 31, 1998, Form 10-K)........................ $ 10
Reduction in deferred tax liabilities (Note E)......... $ 253
Reduction in net property plant and equipment
(derived)............................................ $1,037
</TABLE>
59
<PAGE> 63
COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(D) The pro forma adjustments reflect the redemption of all 4,664,000
outstanding shares of Cyprus Amax's Series A Preferred Stock which are
redeemable at Cyprus Amax's option at $52.40 per share and the issuance by
Phelps Dodge of $244 million of ten-year debt to finance the redemption.
Interest is estimated to be fixed at 7.75% resulting in annual interest
expense of $19 million. The interest rate estimate was based upon ten-year
treasury bill rates at August 17, 1999, plus Phelps Dodge's indicative rate
basis points. A change in the interest rate on the debt by 1/8 percent
would impact annual interest expense by approximately $300,000. Debt issue
costs are estimated to be approximately $5 million with annual amortization
of approximately $500,000.
(E) The estimated income tax effect of the pro forma adjustments have
been recorded based upon the estimated effective tax rates of approximately
32% for Asarco and 15% for Cyprus Amax which rates have been derived from
public quarterly and annual filings of Asarco and Cyprus Amax. The business
combinations are expected to be tax-free transactions with Asarco's and
Cyprus Amax's historical tax bases surviving for income tax reporting
purposes.
Provisions for pro forma income tax expense have been recorded for pro
forma adjustments to the Pro Forma Combined Statements of Operations
resulting from pro forma purchase price allocation adjustments and other
items.
Cyprus Amax has reported $176 million of U.S. net operating loss
carryforwards through 1998, expiring from 1999 to 2012, which along with
other deferred tax assets are subject to an existing valuation allowance.
Asarco has reported $573.7 million of net loss carryforwards, which expire
if unused from 2008 through 2018. The net operating loss carryforwards may
be subject to annual limitations after the acquisitions because of the
change in ownership rules. The annual limits will be calculated as the
long-term tax exempt rate (currently 5.18%) times the separate fair market
values of Cyprus Amax and Asarco, with Asarco's value potentially
determined without SPCC. Once all facts are known, the annual limits may
necessitate an increase in the consolidated valuation allowance for
deferred tax assets.
Pro forma income tax expense and deferred tax allocations recorded
upon consummation of the business combinations could vary significantly
from the pro forma estimates because information regarding Asarco's and
Cyprus Amax's income tax reporting is not available to Phelps Dodge.
(F) This pro forma adjustment reflects the issue of 44,660,000 shares
of Phelps Dodge common stock in connection with the exchange offers for all
the outstanding common shares of Asarco and Cyprus Amax. The common stock
of Phelps Dodge represents common shares of $279 million at $6.25 per share
par value and capital in excess of par of $2,342 million. No common shares
have been included for the potential share issues in connection with the
outstanding stock options of Asarco and Cyprus Amax.
(G) These pro forma adjustments eliminate the historical
shareholders' equity accounts of Asarco and Cyprus Amax.
60
<PAGE> 64
COMBINATION OF PHELPS DODGE, ASARCO AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(H) This pro forma adjustment records the estimated reduction in
depreciation, depletion and amortization expense related to the pro forma
reduction in property, plant and equipment recorded in connection with the
business combination purchase price allocation. Because neither fair value
nor book value information regarding the composition of Asarco's or Cyprus
Amax's property, plant and equipment is available to Phelps Dodge, actual
adjustments to depreciation, depletion and amortization expense could
differ substantially from these estimates.
(I) Phelps Dodge holds a 14.0% equity interest in Southern Peru
Copper Corporation (SPCC) which is accounted for as a cost basis investment
with a book value of $13.2 million at June 30, 1999. Asarco reports a 54.3%
equity interest in SPCC which it consolidated in both its June 30, 1999,
Form 10-Q and December 31, 1998, Form 10-K. As a result of Phelps Dodge's
increased ownership in SPCC that would arise through the acquisition of
Asarco, Phelps Dodge would qualify for use of the consolidation method of
reporting for its investment in SPCC. Accordingly, a pro forma adjustment
is recorded to consolidate Phelps Dodge's interest in SPCC including the
elimination of Phelps Dodge's cost basis investment in SPCC and its
recognition of dividend income from SPCC, the reduction of minority
interests in consolidated subsidiaries representing Phelps Dodge's 14.0%
interest, and the retroactive restatement of Phelps Dodge's retained
earnings.
(J) This pro forma adjustment recognizes imputed interest expense
resulting from the fair value adjustment of Asarco's long-term debt as
reported in the Form S-4 Registration Statement of Asarco Cyprus
Incorporated filed August 20, 1999. A pro forma adjustment to recognize
imputed interest resulting from the $42 million fair value adjustment of
Cyprus Amax's debt has not been provided because information necessary to
calculate such adjustment is not reasonably available to Phelps Dodge.
(K) Pro forma weighted average common stock and common stock
equivalents outstanding are estimated as follows (in millions):
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1999 1998
---------------- ----------------
BASIC DILUTED BASIC DILUTED
----- ------- ----- -------
<S> <C> <C> <C> <C>
Average number of Phelps
Dodge common shares
outstanding............... 57.8 57.8 58.2 58.5
Phelps Dodge common shares
to be issued in connection
with the business
combination (Note 2)...... 44.7 44.7 44.7 44.7
----- ----- ----- -----
102.5 102.5 102.9 103.2
===== ===== ===== =====
</TABLE>
The average number of common shares outstanding does not give effect
to Asarco's and Cyprus Amax's outstanding stock options or other common
stock equivalents, which cannot be estimated because information is not
available to Phelps Dodge. Based upon public information reported and the
current exchange offer ratios, Phelps Dodge estimates that the incremental
number of Phelps Dodge shares issueable upon the exercise of Cyprus Amax
and Asarco stock options is approximately 3 million.
61
<PAGE> 65
PHELPS DODGE CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
PHELPS DODGE AND ASARCO COMBINED
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA PRO FORMA
PHELPS DODGE ASARCO ADJUSTMENTS COMBINED
------------ ------ ----------- ---------
<S> <C> <C> <C> <C>
Sales and other operating revenues....... $1,354 966 -- 2,320
------ ----- --- -----
Operating costs and expenses
Cost of products sold.................. 1,073 855 -- 1,928
Depreciation, depletion and
amortization........................ 144 73 (33)(H) 184
Selling and general administrative
expense............................. 60 72 -- 132
Exploration and research expense....... 21 11 -- 32
Non-recurring charges and provision for
asset dispositions*................. 83 4 -- 87
------ ----- --- -----
1,381 1,015 (33) 2,363
------ ----- --- -----
Operating income (loss).................. (27) (49) 33 (43)
Interest expense....................... (48) (38) (3)(I)
(4)(A) (93)
Capitalized interest................... -- -- 4(A) 4
Miscellaneous income and
expense, net........................ (7) 10 (1)(D)
(2)(A) --
------ ----- --- -----
Income (loss) before taxes, minority
interests and equity in net earnings of
affiliated companies................... (82) (77) 27 (132)
Provision for taxes on income.......... 19 25 (9)(E) 35
Minority interests in consolidated
subsidiaries........................ 1 (4) 1(D) (2)
Equity in net earnings (losses) of
affiliated companies................ 5 -- 2(A) 7
------ ----- --- -----
Income (loss) from continuing
operations............................. $ (57) (56) 21 (92)
====== ===== === =====
Net earnings (loss) per share
Basic.................................. $(0.98) (1.24)
Diluted................................ $(0.98) (1.24)
Weighted average shares outstanding
Basic.................................. 57.8 74.1
Diluted................................ 57.8 74.1
</TABLE>
- -------------------------
* See historical financial statements incorporated by reference in this Proxy
Statement for a description of non-recurring charges and provision for asset
dispositions.
62
<PAGE> 66
PHELPS DODGE CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
PHELPS DODGE AND ASARCO COMBINED
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA PRO FORMA
PHELPS DODGE ASARCO ADJUSTMENTS COMBINED
------------ ------ ----------- ---------
<S> <C> <C> <C> <C>
Sales and other operating revenues.................. $3,064 2,233 -- 5,297
------ ----- ---- -----
Operating costs and expenses
Cost of products sold............................. 2,361 1,963 -- 4,324
Depreciation, depletion and amortization.......... 293 145 (64)(H) 374
Selling and general administrative expense........ 123 144 -- 267
Exploration and research expense.................. 55 27 -- 82
Non-recurring charges and provision for asset
dispositions*.................................. (191) 72 -- (119)
------ ----- ---- -----
2,641 2,351 (64) 4,928
------ ----- ---- -----
Operating income (loss)............................. 423 (118) 64 369
Interest expense.................................. (97) (68) (5)(I)
(13)(A) (183)
Capitalized interest.............................. 2 -- 13(A) 15
Miscellaneous income and expense, net............. 9 29 (6)(D)
(4)(A) 28
------ ----- ---- -----
Income (loss) before taxes, minority interests and
equity in net earnings of affiliated companies.... 337 (157) 49 229
Provision for taxes on income..................... (134) 53 (17)(E) (98)
Minority interests in consolidated
subsidiaries................................... (8) (27) 8(D) (27)
Equity in net earnings (losses) of affiliated
companies...................................... (4) -- 4(A) --
------ ----- ---- -----
Income (loss) from continuing operations............ $ 191 (131) 44 104
====== ===== ==== =====
Net earnings (loss) per share
Basic............................................. $ 3.28 1.40
Diluted........................................... $ 3.26 1.39
Weighted average shares outstanding
Basic............................................. 58.2 74.5
Diluted........................................... 58.5 74.8
</TABLE>
- -------------------------
* See historical financial statements incorporated by reference in this Proxy
Statement for a description of non-recurring charges and provision for asset
dispositions.
63
<PAGE> 67
PHELPS DODGE CORPORATION
PRO FORMA COMBINED BALANCE SHEET
PHELPS DODGE AND ASARCO COMBINED
JUNE 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA PRO FORMA
PHELPS DODGE ASARCO ADJUSTMENTS COMBINED
------------ ------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents....................... $ 144 125 (20)(B)
(45)(C) 204
Accounts receivable, net........................ 396 404 -- 800
Inventories..................................... 263 305 (127)(A)
80(C) 521
Supplies........................................ 104 -- 127(A) 231
Prepaid expenses and other assets............... 15 135 10(C)
(33)(A) 127
Deferred income taxes........................... 45 -- 33(A) 78
------ ----- ---- -----
Current assets............................... 967 969 25 1,961
Investments and long-term accounts
receivable................................... 95 190 29(C)
(13)(D) 301
Property, plant and equipment, net.............. 3,501 2,592 (815)(C) 5,278
Other assets and deferred charges............... 339 226 -- 565
------ ----- ---- -----
Total Assets............................ $4,902 3,977 (774) 8,105
====== ===== ==== =====
LIABILITIES
Short-term debt................................. $ 214 16 -- 230
Current portion of long-term debt............... 62 31 -- 93
Accounts payable and accrued expenses........... 456 496 -- 952
Dividends payable............................... 29 -- -- 29
Accrued income taxes............................ 11 90 -- 101
------ ----- ---- -----
Current liabilities.......................... 772 633 -- 1,405
Long-term debt.................................. 801 1,017 (53)(C) 1,765
Deferred income taxes........................... 493 28 (206)(E) 315
Other liabilities and deferred credits.......... 376 306 -- 682
------ ----- ---- -----
2,442 1,984 (259) 4,167
------ ----- ---- -----
Minority interests in consolidated
subsidiaries.................................... 86 534 (147)(D) 473
------ ----- ---- -----
Common shareholders' equity
Common shares................................ 362 525 (525)(G)
102(F) 464
Capital in excess of par value............... 5 -- 855(F) 860
Retained earnings............................ 2,198 949 (949)(G)
134(D) 2,332
Accumulated other comprehensive income
(loss)..................................... (183) (15) 15(G) (183)
Other........................................ (8) -- -- (8)
------ ----- ---- -----
Total Shareholders' Equity.............. 2,374 1,459 (368) 3,465
------ ----- ---- -----
Total Liabilities and Shareholders'
Equity................................ $4,902 3,977 (774) 8,105
====== ===== ==== =====
</TABLE>
64
<PAGE> 68
COMBINATION OF PHELPS DODGE AND ASARCO
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Financial Information has been derived
from historical consolidated financial statements of Phelps Dodge and Asarco
incorporated by reference into this Registration Statement. See Phelps Dodge
"Unaudited Pro Forma Combined Financial Information" on page 49 of this Proxy
Statement.
The assumptions and related pro forma adjustments described below have been
developed from public historical information available to Phelps Dodge. Pro
forma adjustments have been included only to the extent known and reasonably
available to Phelps Dodge. Additional information may exist that could
materially affect the assumptions and related pro forma adjustments. Such
information is not available to Phelps Dodge because it is within the particular
and singular knowledge of Asarco.
2. THE OFFER
Phelps Dodge is proposing a business combination of Phelps Dodge and Asarco
through a separate offering to exchange all the issued and outstanding Asarco
common shares for Phelps Dodge common shares.
Phelps Dodge proposes to exchange all the issued and outstanding Asarco
common shares for Phelps Dodge common shares at an exchange ratio of 0.4098
Phelps Dodge common share for each Asarco common share.
The transaction would be accounted for under the purchase method. The
purchase price for the business combination is estimated as follows (dollars in
millions and shares in thousands except per share data):
<TABLE>
<CAPTION>
ASARCO
--------
<S> <C>
Common shares outstanding (as reported in June 30, 1999,
Form 10-Q)................................................ 39,783
Exchange offer ratio of Phelps Dodge common shares for each
common share.............................................. 0.4098
Phelps Dodge common shares to be issued..................... 16,303
Market price of each Phelps Dodge common share on August 20,
1999, prior to trading halt............................... $58.6875
========
Fair value of Phelps Dodge common shares issued, comprising
par value of $102 ($6.25 per share) and capital in excess
of par of $855............................................ $ 957
Estimated transaction costs................................. 20
--------
Purchase price.............................................. $ 977
========
</TABLE>
The final purchase price could change materially from the purchase price
estimated above as a result of changes in the market price of common shares of
Phelps Dodge and/ or the relative market price of Asarco common shares. There
are arrangements in place at Asarco that could impact the purchase price
including employment agreements, change of control agreements, severance
agreements, restricted stock awards, and certain pension and other employee
benefit plans. In addition, actions may be taken by the management of Asarco, in
a defensive posture or for other reasons, that could impact the purchase price
65
<PAGE> 69
COMBINATION OF PHELPS DODGE AND ASARCO
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
including amending existing agreements or issuing stock options and other
similar bonus awards. The potential impact of these factors cannot be estimated
but could be material.
The estimated purchase price does not give effect to outstanding stock
options which could impact the number of Phelps Dodge shares issued and/or the
purchase price either by their exercise or their conversion to outstanding stock
options of Phelps Dodge. Such effects prior to completion of the business
combination cannot be reasonably estimated from available public information. As
reported in its December 31, 1998, Form 10-K, Asarco had 1,721,249 stock options
outstanding with an average exercise price of $26.12, more than the per share
equivalent value of Asarco's common stock as determined by the exchange offer.
If all of Asarco's outstanding stock options were exercised prior to
consummation of the business combinations, the estimated purchase price would be
increased by approximately $41 million which would be substantially offset by
cash and cash equivalents received as proceeds from such exercises. Although it
is Phelps Dodge's desire that all outstanding Asarco stock options be converted
to Phelps Dodge stock options at the respective offering exchange ratio, it is
not assured whether such conversions can be achieved in whole or in part nor,
consequently, the potential effect on the purchase price.
The estimated purchase price does not include any effect of Asarco's
Shareholder Rights Plan. As described in Asarco's December 31, 1998, Form 10-K,
Asarco adopted a new Shareholder Rights Plan in January 1998 that provides
certain common stock purchase rights if a person or group becomes the beneficial
owner of 15% or more of Asarco's common stock, with certain exceptions.
The final determination of the purchase price may differ from the amount
assumed in the Unaudited Pro Forma Combined Financial Information and that
difference may be material.
3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
The following assumptions and related pro forma adjustments give effect to
the proposed business combination of Phelps Dodge and Asarco as if such
combination occurred on January 1, 1998, in the Unaudited Pro Forma Combined
Statements of Operations for the six-month interim period ended June 30, 1999,
and for the year ended December 31, 1998, respectively, and on June 30, 1999,
for the Unaudited Pro Forma Combined Balance Sheet.
The Unaudited Pro Forma Combined Financial Information is provided for
illustrative purposes only and does not purport to represent what the actual
consolidated results of operations or the consolidated financial position of
Phelps Dodge would have been had the business combination with Asarco occurred
on the respective dates assumed, nor is it necessarily indicative of future
consolidated operating results or financial position.
Future cash cost savings are not recognized in this Unaudited Pro Forma
Combined Financial Information. Non-recurring items related to 1998 and the
six-month interim period ended June 30, 1999, are included (see "Selected
Historical Financial Data" at pages 41 through 46 for a summary of non-recurring
items and special charges).
66
<PAGE> 70
COMBINATION OF PHELPS DODGE AND ASARCO
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(A) Reclassifications have been made to the Asarco historical
consolidated financial information to conform to Phelps Dodge's
presentation.
<TABLE>
<CAPTION>
BALANCE SHEET AT SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1999 DECEMBER 31, 1998
---------------- ---------------- -----------------
(IN $ MILLIONS)
<S> <C> <C> <C>
Asarco reclassification
adjustments:
Inventories.............. (127)
Supplies................. 127
Deferred income taxes
(current asset)....... 33
Prepaid expenses and
other assets.......... (33)
Miscellaneous income and
expense, net.......... (2) (4)
Equity in net earnings
(losses) of affiliated
companies............. 2 4
Interest expense......... 4 13
Capitalized interest..... (4) (13)
</TABLE>
(B) Phelps Dodge estimates it will incur approximately $20 million of
transaction costs, consisting primarily of investment bankers, attorneys
and accountant fees, and financial printing and other charges. These
estimates are preliminary and therefore are subject to change.
(C) If the business combination is consummated, it will be accounted
for using the purchase method of accounting in accordance with generally
accepted accounting principles. Accordingly, the assets and liabilities of
Asarco would be recorded at their estimated fair values.
Phelps Dodge has not had access to information that is within the
peculiar knowledge of Asarco and has not performed its due diligence
necessary to determine the fair value of its assets or liabilities or to
identify unknown liabilities or obligations. Pro forma adjustments to
allocate the purchase price have been recorded in the Unaudited Pro Forma
Combined Financial Information on the basis of fair values reported for
certain assets and liabilities in public information of Asarco. Because
fair value information for the remaining assets and liabilities and any
possible identifiable intangible assets are not reasonably available to
Phelps Dodge, the excess of the historical net book values of Asarco's
assets acquired over the estimated purchase price has been allocated as a
reduction of its combined net property, plant and equipment.
Additionally, Phelps Dodge believes that cost savings will be realized
upon the consolidation and integration of Asarco. Phelps Dodge has not
developed formal plans for combining the operations. Accordingly,
additional liabilities may be incurred in connection with the business
combination and any ultimate restructuring. These
67
<PAGE> 71
COMBINATION OF PHELPS DODGE AND ASARCO
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
additional liabilities and costs have not been contemplated in the
Unaudited Pro Forma Combined Financial Information because information
necessary to reasonably estimate such costs and to formulate detailed
restructuring plans is not available to Phelps Dodge. Accordingly, the
allocation of the purchase price cannot be estimated with a reasonable
degree of accuracy and may differ materially from the amounts assumed in
the Unaudited Pro Forma Combined Financial Information.
The merger agreement by and between Asarco and Cyprus Amax has a $45
million termination fee under certain circumstances. If such fee is
required to be paid upon consummation of Phelps Dodge's proposed
acquisition of Asarco, cash and cash equivalents of Asarco would be
decreased by the fee payment which in turn would impact the purchase price
allocation. The Unaudited Pro Forma Combined Financial Information has been
adjusted to give effect to payment of the termination fee.
The pro forma purchase price allocation adjustments are estimated as
follows (in millions):
<TABLE>
<S> <C>
Reduction of debt to fair value (as reported in the Form
S-4 Registration Statement of Asarco Cyprus
Incorporated filed August 20, 1999)................... $ 53
Restricted investment in Grupo Mexico (as reported in
Asarco's December 31, 1998, Form 10-K)................ $ 29
Increase in LIFO based inventory to replacement cost (as
reported in Asarco's June 30, 1999, Form 10-Q)........ $ 80
Excess fair value of pension plan assets over the
projected benefit obligation (as reported in Asarco's
December 31, 1998, Form 10-K)......................... $ 10
Reduction in deferred tax liabilities (Note E).......... $206
Reduction in net property plant and equipment
(derived)............................................. $815
</TABLE>
(D) Phelps Dodge holds a 14.0% equity interest in Southern Peru Copper
Corporation (SPCC) which is accounted for as a cost basis investment with a
book value of $13.2 million at June 30, 1999. Asarco reports a 54.3% equity
interest in SPCC which it consolidated in both its June 30, 1999, Form 10-Q
and December 31, 1998, Form 10-K. As a result of Phelps Dodge's increased
ownership in SPCC that would arise through the acquisition of Asarco,
Phelps Dodge would qualify for use of the consolidation method of reporting
for its investment in SPCC. Accordingly, a pro forma adjustment is recorded
to consolidate Phelps Dodge's interest in SPCC including the elimination of
Phelps Dodge's cost basis investment in SPCC and its recognition of
dividend income from SPCC, the reduction of minority interests in
consolidated subsidiaries representing Phelps Dodge's 14.0% interest, and
the retroactive restatement of Phelps Dodge's retained earnings.
(E) The estimated income tax effect of the pro forma adjustments has
been recorded based upon the estimated effective tax rate of approximately
32% for Asarco which rate has been derived from public quarterly and annual
filings. The business combination is expected to be a tax-free transaction
with Asarco's historical tax bases surviving for income tax reporting
purposes.
68
<PAGE> 72
COMBINATION OF PHELPS DODGE AND ASARCO
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
A provision for pro forma income tax expense has been recorded
for pro forma adjustments to the Pro Forma Combined Statements of
Operations resulting from pro forma purchase price allocation adjustments
and other items.
Asarco has reported $573.7 million of net loss carryforwards,
which expire if unused from 2008 through 2018. The net operating loss
carryforwards may be subject to annual limitations after the acquisitions
because of the change in ownership rules. The annual limits will be
calculated as the long-term tax exempt rate (currently 5.18%) times the
fair market value of Asarco, with Asarco's value potentially determined
without SPCC. Once all facts are known, the annual limits may necessitate
an increase in the consolidated valuation allowance for deferred tax
assets.
Pro forma income tax expense and deferred tax allocations
recorded upon consummation of the business combination could vary
significantly from the pro forma estimates because information regarding
Asarco's income tax reporting is not available to Phelps Dodge.
(F) This pro forma adjustment reflects the issue of 16,303,000 shares
of Phelps Dodge common stock in connection with the exchange offer for all
the outstanding common shares of Asarco. The common stock of Phelps Dodge
represents common shares of $102 million at $6.25 per share par value and
capital in excess of par of $855 million. No common shares have been
included for the potential share issues in connection with the outstanding
stock options of Asarco.
(G) These pro forma adjustments eliminate the historical shareholders'
equity accounts of Asarco.
(H) This pro forma adjustment records the estimated reduction in
depreciation, depletion and amortization expense related to the pro forma
reduction in property, plant and equipment recorded in connection with the
business combination purchase price allocation. Because neither fair value
nor book value information regarding the composition of Asarco's property,
plant and equipment is available to Phelps Dodge, actual adjustments to
depreciation, depletion and amortization expense could differ substantially
from these estimates.
(I) This pro forma adjustment recognizes imputed interest expense
resulting from the fair value adjustment of Asarco's long-term debt as
reported in the Form S-4 Registration Statement of Asarco Cyprus
Incorporated filed August 20, 1999.
69
<PAGE> 73
COMBINATION OF PHELPS DODGE AND ASARCO
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(J) Pro forma weighted average common stock and common stock
equivalents outstanding are estimated as follows (in millions):
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, 1999 DECEMBER 31, 1998
---------------------- ------------------
BASIC DILUTED BASIC DILUTED
------- --------- ----- -------
<S> <C> <C> <C> <C>
Average number of
Phelps Dodge common
shares
outstanding........ 57.8 57.8 58.2 58.5
Phelps Dodge common
shares to be issued
in connection with
the business
combination (Note
2)................. 16.3 16.3 16.3 16.3
---- ---- ---- ----
74.1 74.1 74.5 74.8
==== ==== ==== ====
</TABLE>
The average number of common shares outstanding does not give effect
to Asarco's outstanding stock options or other common stock equivalents,
which cannot be estimated because information is not available to Phelps
Dodge.
70
<PAGE> 74
PHELPS DODGE CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
PHELPS DODGE AND CYPRUS AMAX COMBINED
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------- PRO FORMA PRO FORMA
PHELPS DODGE CYPRUS AMAX ADJUSTMENTS COMBINED
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Sales and other operating revenues............ $1,354 561 -- 1,915
------ --- ---- -----
Operating costs and expenses
Cost of products sold....................... 1,073 428 -- 1,501
Depreciation, depletion
and amortization......................... 144 104 (4)(H) 244
Selling and general administrative
expense.................................. 60 34 -- 94
Exploration and research expense............ 21 8 -- 29
Non-recurring charges and provision for
asset dispositions*...................... 83 -- -- 83
------ --- ---- -----
1,381 574 (4) 1,951
------ --- ---- -----
Operating income (loss)....................... (27) (13) 4 (36)
Interest expense............................ (48) (69) (9)(D) (126)
Capitalized interest........................ -- 2 -- 2
Miscellaneous income and
expense, net............................. (7) (11) 8(A) (10)
------ --- ---- -----
Income (loss) before taxes, minority interests
and equity in net earnings of affiliated
companies................................... (82) (91) 3 (170)
Provision for taxes on income............... 19 14 (1)(E)
(1)(A) 31
Minority interests in consolidated
subsidiaries............................. 1 -- -- 1
Equity in net earnings (losses) of
affiliated companies..................... 5 -- (7)(A) (2)
------ --- ---- -----
Income (loss) from continuing
operations.................................. (57) (77) (6) (140)
Preferred stock dividends................... -- (9) 9(D) --
------ --- ---- -----
Income (loss) from continuing operations
applicable to common shares................. $ (57) (86) 3 (140)
====== === ==== =====
Net earnings (loss) per share
Basic....................................... $(0.98) (1.62)
Diluted..................................... $(0.98) (1.62)
Weighted average shares outstanding
Basic....................................... 57.8 86.2
Diluted..................................... 57.8 86.2
</TABLE>
- -------------------------
* See historical financial statements incorporated by reference in this Proxy
Statement for a description of non-recurring charges and provision for asset
dispositions.
71
<PAGE> 75
PHELPS DODGE CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
PHELPS DODGE AND CYPRUS AMAX COMBINED
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------- PRO FORMA PRO FORMA
PHELPS DODGE CYPRUS AMAX ADJUSTMENTS COMBINED
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Sales and other operating revenues......... $3,064 1,660 (218)(A) 4,506
------ ----- ---- -----
Operating costs and expenses
Cost of products sold...................... 2,361 1,087 (200)(A) 3,248
Depreciation, depletion and
amortization.......................... 293 254 (7)(A)
(6)(H) 534
Selling and general administrative
expense............................... 123 105 -- 228
Exploration and research expense......... 55 45 -- 100
Non-recurring charges and provision for
asset dispositions*................... (191) 118 -- (73)
------ ----- ---- -----
2,641 1,609 (213) 4,037
------ ----- ---- -----
Operating income (loss).................... 423 51 (5) 469
Interest expense......................... (97) (157) (19)(D) (273)
Capitalized interest..................... 2 2 -- 4
Miscellaneous income and expense, net.... 9 17 -- 26
------ ----- ---- -----
Income (loss) before taxes, minority
interests and equity in net earnings of
affiliated companies..................... 337 (87) (24) 226
Provision for taxes on income............ (134) (11) 4(E) (141)
Minority interests in consolidated
subsidiaries.......................... (8) 1 -- (7)
Equity in net earnings (losses) of
affiliated companies.................. (4) (53) -- (57)
------ ----- ---- -----
Income (loss) from continuing operations... 191 (150) (20) 21
Preferred stock dividends................ -- (19) 19(D) --
------ ----- ---- -----
Income (loss) from continuing operations
applicable to common shares.............. $ 191 (169) (1) 21
====== ===== ==== =====
Net earnings (loss) per share
Basic.................................... $ 3.28 0.24
Diluted.................................. $ 3.26 0.24
Weighted average shares outstanding
Basic.................................... 58.2 86.6
Diluted.................................. 58.5 86.9
</TABLE>
- -------------------------
* See historical financial statements incorporated by reference in this Proxy
Statement for a description of non-recurring charges and provision for asset
dispositions.
72
<PAGE> 76
PHELPS DODGE CORPORATION
PRO FORMA COMBINED BALANCE SHEET
PHELPS DODGE AND CYPRUS AMAX COMBINED
JUNE 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------- PRO FORMA PRO FORMA
PHELPS DODGE CYPRUS AMAX ADJUSTMENTS COMBINED
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents..................... $ 144 1,275 (20)(B)
(45)(C)
(5)(D) 1,349
Accounts receivable, net...................... 396 37 -- 433
Inventories................................... 263 239 4(C) 506
Supplies...................................... 104 55 -- 159
Prepaid expenses.............................. 15 74 (5)(C) 84
Deferred income taxes......................... 45 32 -- 77
------ ----- ------ -----
Current assets.............................. 967 1,712 (71) 2,608
Investments and long-term accounts
receivable.................................. 95 328 9(A) 432
Property, plant and equipment, net............ 3,501 2,546 (90)(C) 5,957
Other assets and deferred charges............. 339 160 (9)(A)
5(D) 495
------ ----- ------ -----
Total Assets........................... $4,902 4,746 (156) 9,492
====== ===== ====== =====
LIABILITIES
Short-term debt............................... $ 214 249 -- 463
Current portion of long-term debt............. 62 79 -- 141
Accounts payable and accrued expenses......... 456 324 -- 780
Dividends payable............................. 29 9 -- 38
Accrued income taxes.......................... 11 81 -- 92
------ ----- ------ -----
Current liabilities......................... 772 742 -- 1,514
Long-term debt................................ 801 1,499 244(D)
(42)(C) 2,502
Deferred income taxes......................... 493 14 (15)(E) 492
Other liabilities and deferred credits........ 376 412 52(C) 840
------ ----- ------ -----
2,442 2,667 239 5,348
------ ----- ------ -----
Minority interests in consolidated
subsidiaries.................................. 86 20 -- 106
------ ----- ------ -----
Common shareholders' equity
Common shares................................. 362 1 (1)(G)
177(F) 539
Treasury shares............................... -- (86) 86(A) --
Preferred shares.............................. -- 5 (5)(D) --
Capital in excess of par value................ 5 2,912 (86)(A)
(2,826)(G)
1,487(F) 1,492
Retained earnings............................. 2,198 (768) 768(G) 2,198
Accumulated other comprehensive income
(loss)...................................... (183) (5) 5(G) (183)
Other......................................... (8) -- -- (8)
------ ----- ------ -----
Total Shareholders' Equity............. 2,374 2,059 (395) 4,038
------ ----- ------ -----
Total Liabilities and Shareholders'
Equity............................... $4,902 4,746 (156) 9,492
====== ===== ====== =====
</TABLE>
73
<PAGE> 77
COMBINATION OF PHELPS DODGE AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Financial Information has been derived
from historical consolidated financial statements of Phelps Dodge and Cyprus
Amax incorporated by reference into this Proxy Statement. See Phelps Dodge
"Unaudited Pro Forma Combined Financial Information" on page 49 of this Proxy
Statement.
The assumptions and related pro forma adjustments described below have been
developed from public historical information available to Phelps Dodge. Pro
forma adjustments have been included only to the extent known and reasonably
available to Phelps Dodge. Additional information may exist that could
materially affect the assumptions and related pro forma adjustments. Such
information is not available to Phelps Dodge because it is within the particular
and singular knowledge of Cyprus Amax.
2. THE OFFER
Phelps Dodge is proposing a business combination of Phelps Dodge and Cyprus
Amax through a separate offering to exchange all the issued and outstanding
Cyprus Amax common shares for Phelps Dodge common shares.
Phelps Dodge proposes to exchange all the issued and outstanding Cyprus
Amax common shares for Phelps Dodge common shares at an exchange ratio of 0.3135
Phelps Dodge common share for each Cyprus Amax common share.
The transaction would be accounted for under the purchase method. The
purchase price for the business combinations is estimated as follows (dollars in
millions and shares in thousands except per share data):
<TABLE>
<CAPTION>
CYPRUS
AMAX
--------
<S> <C>
Common shares outstanding (as reported in June 30, 1999,
Form 10-Q)................................................ 90,454
Exchange offer ratio of Phelps Dodge common shares for each
common share.............................................. 0.3135
Phelps Dodge common shares to be issued..................... 28,357
Market price of each Phelps Dodge common share on August 20,
1999, prior to trading halt............................... $58.6875
========
Fair value of Phelps Dodge common shares issued, comprising
par value of $177 ($6.25 per share) and capital in excess
of par of $1,487.......................................... $ 1,664
Redemption of Cyprus Amax Series A Preferred Stock (Note
3D)....................................................... 244
Estimated transaction costs................................. 20
--------
Purchase price.............................................. $ 1,928
========
</TABLE>
The final purchase price could change materially from the purchase price
estimated above as a result of changes in the market price of common shares of
Phelps Dodge and/or the relative market price of Cyprus Amax common shares.
There are arrangements in place at Cyprus Amax that could impact the purchase
price including employment
74
<PAGE> 78
COMBINATION OF PHELPS DODGE AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
agreements, change of control severance agreements, stock appreciation rights,
and certain pension and other employee benefit plans. In addition, actions may
be taken by the management of Cyprus Amax, in a defensive posture or for other
reasons, that could impact the purchase price including amending existing
agreements or issuing stock options and other similar bonus awards. The
potential impact of these factors cannot be estimated but could be material.
The estimated purchase price does not give effect to outstanding stock
options which could impact the number of Phelps Dodge shares issued and/or the
purchase price either by their exercise or their conversion to outstanding stock
options of Phelps Dodge. Such effects prior to completion of the business
combination cannot be reasonably estimated from available public information. As
reported in its December 31, 1998, Form 10-K, Cyprus Amax had 6,346,801 stock
options outstanding of which 2,024,009 had weighted average exercise prices less
than the per share equivalent value of Cyprus Amax common stock as determined by
the terms of the exchange offer. If Cyprus Amax's 2,024,009 stock options were
exercised prior to consummation of the business combination, the estimated
purchase price would be increased by approximately $37 million which would be
substantially offset by cash and cash equivalents received as proceeds from such
exercises. Although it is Phelps Dodge's desire that all outstanding Cyprus Amax
stock options be converted to Phelps Dodge stock options at the respective
offering exchange ratio, it is not assured whether such conversions can be
achieved in whole or in part nor, consequently, the potential effect on the
purchase price.
The estimated purchase price does not include any effect of Cyprus Amax's
outstanding preferred share purchase rights. As described in its December 31,
1998, Form 10-K, Cyprus Amax issued in February 1999 one preferred purchase
right for each share of common stock which confers certain rights to the holder
including certain rights in the event of an acquisition of 15% or more of Cyprus
Amax's common stock.
The final determination of the purchase price may differ from the amount
assumed in the Unaudited Pro Forma Combined Financial Information and that
difference may be material.
3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
The following assumptions and related pro forma adjustments give effect to
the proposed business combination of Phelps Dodge and Cyprus Amax as if such
combination occurred on January 1, 1998, in the Unaudited Pro Forma Combined
Statements of Operations for the six-month interim period ended June 30, 1999,
and for the year ended December 31, 1998, respectively, and on June 30, 1999,
for the Unaudited Pro Forma Combined Balance Sheet.
The Unaudited Pro Forma Combined Financial Information is provided for
illustrative purposes only and does not purport to represent what the actual
consolidated results of operations or the consolidated financial position of
Phelps Dodge would have been had the business combination with Cyprus Amax
occurred on the respective dates assumed, nor is it necessarily indicative of
future consolidated operating results or financial position.
75
<PAGE> 79
COMBINATION OF PHELPS DODGE AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
Future cash cost savings are not recognized in this Unaudited Pro Forma
Combined Financial Information. Non-recurring items related to 1998 and the
six-month interim period ended June 30, 1999 are included (see "Selected
Historical Financial Data" at pages 41 through 46 for a summary of non-recurring
items and special charges).
(A) Reclassifications have been made to the Cyprus Amax historical
consolidated financial information to conform to Phelps Dodge's
presentation. The historical financial information of Cyprus Amax excludes
the results of operations and assets of its discontinued Coal segment as
reported for 1998 operations in Cyprus Amax's Form 8-K dated June 30, 1999,
and as reported as of and for the six months ended June 30, 1999, in its
Form 10-Q filing for such period. Cyprus Amax's historical financial
information for the year ended December 31, 1998, also has been adjusted to
exclude the identifiable results of recurring operations of its Lithium
segment which was sold in October 1998.
<TABLE>
<CAPTION>
BALANCE SHEET SIX MONTHS YEAR ENDED
AT JUNE 30, ENDED DECEMBER 31,
1999 JUNE 30, 1999 1998
------------- ------------- ------------
(IN $ MILLIONS)
<S> <C> <C> <C>
Reclassification
adjustments:
Investments and
notes
receivable....... 9
Other assets and
deferred
charges.......... (9)
Treasury shares..... 86
Capital in excess of
par value........ (86)
Miscellaneous income
and expense,
net.............. 8
Provision for taxes
on income........ (1)
Equity in net
earnings (losses)
of affiliated
companies........ (7)
Elimination of
recurring results
from sold Lithium
segment:
Sales and other
operating
revenues......... (218)
Cost of products
sold (derived)... (200)
Depreciation,
depletion and
amortization
expense.......... (7)
</TABLE>
(B) Phelps Dodge estimates it will incur approximately $20 million of
transaction costs, consisting primarily of investment bankers, attorneys
and accountant
76
<PAGE> 80
COMBINATION OF PHELPS DODGE AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
fees, and financial printing and other charges. These estimates are
preliminary and therefore are subject to change.
(C) If the business combination is consummated, it will be accounted
for using the purchase method of accounting in accordance with generally
accepted accounting principles. Accordingly, the assets and liabilities of
Cyprus Amax would be recorded at their estimated fair values.
Phelps Dodge has not had access to information that is within the
peculiar knowledge of Cyprus Amax and has not performed its due diligence
necessary to determine the fair value of its assets or liabilities or to
identify unknown liabilities or obligations. Pro forma adjustments to
allocate the purchase price have been recorded in the Unaudited Pro Forma
Combined Financial Information on the basis of fair values reported for
certain assets and liabilities in public information of Cyprus Amax.
Because fair value information for the remaining assets and liabilities and
any possible identifiable intangible assets are not reasonably available to
Phelps Dodge, the excess of the historical net book values of Cyprus Amax's
assets acquired over the estimated purchase price has been allocated as a
reduction of its combined net property, plant and equipment.
Additionally, Phelps Dodge believes that cost savings will be realized
upon the consolidation and integration of Cyprus Amax. Phelps Dodge has not
developed formal plans for combining the operations. Accordingly,
additional liabilities may be incurred in connection with the business
combination and any ultimate restructuring. These additional liabilities
and costs have not been contemplated in the Unaudited Pro Forma Combined
Financial Information because information necessary to reasonably estimate
such costs and to formulate detailed restructuring plans is not available
to Phelps Dodge. Accordingly, the allocation of the purchase price cannot
be estimated with a reasonable degree of accuracy and may differ materially
from the amounts assumed in the Unaudited Pro Forma Combined Financial
Information.
The merger agreement by and between Asarco and Cyprus Amax has a $45
million termination fee under certain circumstances. If such fee is
required to be paid upon consummation of Phelps Dodge's proposed
acquisition of Cyprus Amax, cash and cash equivalents of Cyprus Amax would
be decreased by the fee payment which in turn would impact the purchase
price allocation. The Unaudited Pro Forma Combined Financial Information
has been adjusted to give effect to payment of the termination fee.
77
<PAGE> 81
COMBINATION OF PHELPS DODGE AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
The pro forma purchase price allocation adjustments are estimated as
follows (in millions):
<TABLE>
<S> <C>
Reduction of debt to fair value (as reported in Cyprus
Amax's June 30, 1999, Form 10-Q)....................... $42
Increase in LIFO based inventory to replacement cost (as
reported in Cyprus Amax's December 31, 1998, Form
10-K).................................................. $ 4
Excess projected benefit obligation over the fair value
of pension plan assets (as reported in Cyprus Amax's
December 31, 1998, Form 10-K, comprising a $5 million
reduction of prepaid expenses and other assets and a
$52 million increase in other liabilities and deferred
credits)............................................... $57
Reduction in deferred tax liabilities (Note E)........... $15
Reduction in net property plant and equipment
(derived).............................................. $90
</TABLE>
(D) The pro forma adjustments reflect the redemption of all 4,664,000
outstanding shares of Cyprus Amax's Series A Preferred Stock which are
redeemable at Cyprus Amax's option at $52.40 per share and the issuance by
Phelps Dodge of $244 million of ten-year debt to finance the redemption.
Interest is estimated to be fixed at 7.75% resulting in annual interest
expense of $19 million. The interest rate estimate was based upon ten-year
treasury bill rates at August 17, 1999, plus Phelps Dodge's indicative rate
basis points. A change in the interest rate on the debt by 1/8 percent
would impact annual interest expense by approximately $300,000. Debt issue
costs associated with the debt are estimated to be approximately $5 million
with annual amortization of approximately $500,000.
(E) The estimated income tax effect of the pro forma adjustments has
been recorded based upon the estimated effective tax rate of approximately
15% for Cyprus Amax which rate has been derived from public quarterly and
annual filings. The business combination is expected to be a tax-free
transaction with Cyprus Amax's historical tax bases surviving for income
tax reporting purposes.
A provision for pro forma income tax expense has been recorded for pro
forma adjustments to the Pro Forma Combined Statements of Operations
resulting from pro forma purchase price allocation adjustments and other
items.
Cyprus Amax has reported $176 million of U.S. net operating loss
carryforwards through 1998, expiring from 1999 to 2012, which along with
other deferred tax assets are subject to an existing valuation allowance.
The net operating loss carryforwards may be subject to annual limitations
after the acquisition because of the change in ownership rules. The annual
limits will be calculated as the long-term tax exempt rate (currently
5.18%) times the fair market value of Cyprus Amax. Once all facts are
known, the annual limits may necessitate an increase in the consolidated
valuation allowance for deferred tax assets.
Pro forma income tax expense and deferred tax allocations recorded
upon consummation of the business combination could vary significantly from
the pro forma estimates because information regarding Cyprus Amax's income
tax reporting is not available to Phelps Dodge.
78
<PAGE> 82
COMBINATION OF PHELPS DODGE AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(F) This pro forma adjustment reflects the issue of 28,357,000 shares
of Phelps Dodge common stock in connection with the exchange offers for all
the outstanding common shares of Cyprus Amax. The common stock of Phelps
Dodge represents common shares of $177 million at $6.25 per share par value
and capital in excess of par of $1,487 million. No common shares have been
included for the potential shares issues in connection with the outstanding
stock options of Cyprus Amax.
(G) These pro forma adjustments eliminate the historical shareholders'
equity accounts of Cyprus Amax.
(H) This pro forma adjustment records the estimated reduction in
depreciation, depletion and amortization expense related to the pro forma
reduction in property, plant and equipment recorded in connection with the
business combination purchase price allocation. Because neither fair value
nor book value information regarding the composition of Cyprus Amax's
property, plant and equipment is available to Phelps Dodge, actual
adjustments to depreciation, depletion and amortization expense could
differ substantially from these estimates.
(I) A pro forma adjustment to recognize imputed interest resulting
from the $42 million fair value adjustment of Cyprus Amax's debt has not
been provided because information necessary to calculate such adjustment is
not reasonably available to Phelps Dodge.
(J) Pro forma weighted average common stock and common stock
equivalents outstanding are estimated as follows (in millions):
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1999 1998
---------------- ----------------
BASIC DILUTED BASIC DILUTED
----- ------- ----- -------
<S> <C> <C> <C> <C>
Average number of Phelps
Dodge common shares
outstanding.............. 57.8 57.8 58.2 58.5
Phelps Dodge common shares
to be issued in
connection with the
business combination
(Note 2)................. 28.4 28.4 28.4 28.4
---- ---- ---- ----
86.2 86.2 86.6 86.9
==== ==== ==== ====
</TABLE>
The average number of common shares outstanding does not give effect to
Cyprus Amax's outstanding stock options or other common stock equivalents, which
cannot be estimated because information is not available to Phelps Dodge. Based
upon public information reported and the current exchange offer ratio, Phelps
Dodge estimates that the incremental number of Phelps Dodge shares issueable
upon the exercise of Cyprus Amax stock options is approximately 3 million.
79
<PAGE> 83
DESCRIPTION OF PHELPS DODGE CAPITAL STOCK
The following description of the terms of the capital stock of Phelps Dodge
is not meant to be complete and is qualified by reference to Phelps Dodge's
Restated Certificate of Incorporation (the "Phelps Dodge charter"), which is
incorporated herein by reference.
AUTHORIZED CAPITAL STOCK
Under the Phelps Dodge charter, Phelps Dodge's authorized capital stock
consists of 200,000,000 shares of Phelps Dodge common stock, par value $6.25 per
share, and 6,000,000 shares of Phelps Dodge preferred stock, par value $1.00 per
share.
PHELPS DODGE COMMON STOCK
PHELPS DODGE COMMON STOCK OUTSTANDING
The outstanding shares of Phelps Dodge common stock are, and the shares of
Phelps Dodge common stock issued pursuant to the Asarco Offer and the Cyprus
Amax Offer will be, duly authorized, validly issued, fully paid and
nonassessable.
VOTING RIGHTS
Each holder of Phelps Dodge common stock is entitled to one vote for each
share of Phelps Dodge common stock held of record on the applicable record date
on all matters submitted to a vote of shareholders.
DIVIDEND RIGHTS; RIGHTS UPON LIQUIDATION
The holders of Phelps Dodge common stock are entitled to receive, from
funds legally available for the payment thereof, dividends when and as declared
by resolution of the Board, subject to any preferential dividend rights granted
to the holders of any outstanding Phelps Dodge preferred stock.
In the event of liquidation, each share of Phelps Dodge common stock is
entitled to share pro rata in any distribution of Phelps Dodge's assets after
payment or providing for the payment of liabilities and the liquidation
preference of any outstanding Phelps Dodge preferred stock.
PREEMPTIVE RIGHTS
Holders of Phelps Dodge common stock have no preemptive rights to purchase,
subscribe for or otherwise acquire any unissued or treasury shares or other
securities.
PHELPS DODGE PREFERRED STOCK
PHELPS DODGE PREFERRED STOCK OUTSTANDING.
As of the date of this Proxy Statement, no shares of Phelps Dodge preferred
stock were issued and outstanding.
80
<PAGE> 84
AUTHORIZED PREFERRED STOCK
Under Phelps Dodge's charter, the Board has the authority, without
shareholder approval, to create one or more classes or series within a class of
preferred stock, to issue shares of preferred stock in such class or series up
to the maximum number of shares of the relevant class or series of preferred
stock authorized, and to determine the preferences, rights, privileges and
restrictions of any such class or series, including the dividend rights, voting
rights, the rights and terms of redemption, the rights and terms of conversion,
liquidation preferences, the number of shares constituting any such class or
series and the designation of such class or series. The Board has designated a
series of preferred stock as Junior Participating Cumulative Preferred Shares,
and has issued rights to purchase those shares which are exercisable only upon
the occurrence of certain events.
TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C. is the transfer and dividend
paying agent and registrar for the Phelps Dodge Common Stock.
81
<PAGE> 85
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERS OF FIVE PERCENT OR MORE OF PHELPS DODGE'S COMMON STOCK
To the knowledge of Phelps Dodge, the following entities beneficially owned
in excess of five percent of Phelps Dodge's common shares as of September 13,
1999:
<TABLE>
<CAPTION>
PERCENT
NUMBER OF OF
NAME AND ADDRESS SHARES OUTSTANDING
---------------- --------- -----------
<S> <C> <C>
Capital Research and Management Company(a)................ 5,966,300 10.3%
333 South Hope Street
Los Angeles, CA 90071
Wellington Management Company, LLP;....................... 4,004,000 6.91%
and Vanguard Wellington Fund, Inc.(b)
75 State Street
Boston, MA 02109
AMVESCAP PLC; AVZ, Inc.; AIM Management Group Inc.;....... 5,225,278 8.91%
AMVESCAP Group Services, Inc.; INVESCO, Inc.;
INVESCO North American Holdings, Inc.; and
INVESCO Capital Management, Inc.(c)
11 Devonshire Square
London, EC2M 4YR England
Morgan Stanley Dean Witter & Co.; and..................... 4,857,746 8.38%
Morgan Stanley Dean Witter Advisors Inc. (d)
1585 Broadway
New York, NY 10036
FMR Corp.; Fidelity Management & Research................. 4,291,946 7.41%
Company; Edward C. Johnson 3d; and
Abigail P. Johnson (e)
82 Devonshire Street
Boston, MA 02109
</TABLE>
- ---------------
(a) A report on Schedule 13G, dated February 8, 1999, disclosed that this
entity, as a registered investment advisor, had sole dispositive power over
5,966,300 shares which represented 10.3% of the outstanding common shares at
December 31, 1998.
(b) Wellington Management Company LLP filed a report on Schedule 13G, dated
December 31, 1998, which disclosed that, as a registered investment advisor
and a parent holding company, it had shared voting power over 84,800 shares
and shared dispositive power over 4,004,000 shares (including the 3,804,900
shares held by Vanguard Wellington Fund described below) which represented
6.91% of the outstanding common shares at December 31, 1998. On a separate
Schedule 13G, dated February 10, 1999, the Vanguard Wellington Fund
disclosed that it had sole voting power and shared dispositive power over
3,804,900 shares which represented 6.57% of the outstanding common shares at
December 31, 1998. Wellington Management is the investment advisor for the
Vanguard Wellington Fund and shares dispositive power over the shares held
by the Fund. The address of the Vanguard Wellington Fund is 100 Vanguard
Boulevard, Malvern, PA 19355.
(c) A report on Schedule 13G, dated February 8, 1999, disclosed that these
entities, filing jointly as parent holding companies and as a registered
investment advisor (INVESCO Capital Management, Inc.), had shared voting
power over 5,225,278 shares and shared dispositive power over 5,225,278
shares which represented 8.91% of the outstanding common shares at December
31, 1998.
(footnotes continued on following page)
82
<PAGE> 86
(d) A report on Schedule 13G, dated February 5, 1999 and filed jointly by these
entities, disclosed that Morgan Stanley Dean Witter & Co., as a registered
investment adviser, had shared voting power and shared dispositive power
over 4,857,746 shares which represented 8.38% of the outstanding common
shares at December 31, 1998. The report further disclosed that Morgan
Stanley Dean Witter Advisors Inc., a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., and also as a registered investment adviser, had
shared voting power over 4,718,125 shares and shared dispositive power over
4,765,992 shares which represented 8.22% of the outstanding common shares at
December 31, 1998.
(e) A report on Schedule 13G, dated May 11, 1999 and filed jointly by these
entities and persons, disclosed that Fidelity Management & Research Company,
a wholly owned subsidiary of FMR Corp., and as a registered investment
adviser, beneficially owned 3,309,400 shares or 5.712% of the outstanding
common shares at May 7, 1999. According to the report, at that date, Edward
C. Johnson 3d, Chairman of FMR Corp., FMR Corp. and various investment
companies to which Fidelity Management & Research Company acted as
investment adviser each had sole dispositive power over 3,309,400 shares
owned by the investment companies and neither FMR Corp. nor Edward C.
Johnson 3rd had sole voting power over those shares. Further, the report
disclosed that Fidelity Management Trust Company, a wholly owned subsidiary
of FMR Corp., and as a bank and investment manager of institutional
accounts, beneficially owned 174,016 shares or 0.300% of the outstanding
common shares at May 7, 1999. According to the report, at that date, Edward
C. Johnson 3d and FMR Corp. each had sole dispositive power over 174,016
shares and sole discretionary voting power over 92,116 shares. The report
stated that Edward C. Johnson 3d, Abigail P. Johnson, and other members of
the Johnson family may be deemed to form a controlling group with respect to
FMR Corp. The report also disclosed that Fidelity International Limited,
Pembroke Hall, 42 Crow Lane, Hamilton, Bermuda, as an investment adviser to
various investment companies and certain institutional investors,
beneficially owned 808,530 shares or 1.395% of the outstanding common shares
at May 7, 1999, with sole dispositive power and sole voting power. According
to the report, FMR Corp. and Fidelity International Limited were not acting
as a "group" for purposes of Section 13(d) of the Securities Exchange Act of
1934 and were not otherwise required to attribute to each other the
beneficial ownership of securities beneficially owned by either of them. The
report stated that FMR Corp. was making the filing on Schedule 13G on a
voluntary basis as if all of the shares were beneficially owned by FMR Corp.
and Fidelity International Limited on a joint basis.
STOCK OWNERSHIP OF THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of September 10, 1999, information
regarding the beneficial ownership of Phelps Dodge common shares by (i) each of
Phelps Dodge's directors, (ii) the Chief Executive Officer of Phelps Dodge,
(iii) each of Phelps Dodge's other named executive officers and (iv) all of
Phelps Dodge's directors and named executive officers as a group.
On September 10, 1999, the directors and the named executive officers of
Phelps Dodge owned, in the aggregate, 1,318,414 shares of Phelps Dodge's common
stock (approximately 2.3 percent of the shares outstanding). Phelps Dodge's
directors also have interests in stock-based units under Phelps Dodge plans.
While these units may not be voted or transferred, they are listed in the table
below because they represent a component of the total economic interest of our
directors in Phelps Dodge's stock. None of the
83
<PAGE> 87
directors or named executive officers of Phelps Dodge individually owned more
than one percent of the outstanding shares of Phelps Dodge's common stock.
<TABLE>
<CAPTION>
OPTIONS
SHARES EXERCISABLE
NAME OF BENEFICIALLY WITHIN STOCK
BENEFICIAL OWNER OWNED 60 DAYS UNITS(1) TOTAL
---------------- ------------ ----------- -------- ---------
<S> <C> <C> <C> <C>
Robert N. Burt................. 2,260 3,444 1,975(2) 7,679
Archie W. Dunham............... 1,000 0 864(2) 1,864
William A. Franke.............. 2,000 9,184 2,374 13,558
Paul Hazen..................... 1,100 9,184 5,646(2) 15,930
Manuel J. Iraola............... 51,480(3) 114,580 0 166,060
Marie L. Knowles............... 1,000 2,296 1,473 4,769
Robert D. Krebs................ 1,999 8,036 2,011 12,046
Southwood J. Morcott........... 1,901 5,740 5,280(2) 12,921
Gordon R. Parker............... 1,239 2,296 1,602 5,137
Ramiro G. Peru(4).............. 22,210(3) 32,107 0 54,317
Thomas M. St. Clair(4)......... 20,606 122,051 0 142,657
Timothy R. Snider.............. 8,624 31,292 0 39,916
J. Steven Whisler.............. 78,994(3) 199,325 0 278,319
Douglas C. Yearley............. 113,078 450,163 0 563,241
Directors and named executive
officers as a group.......... 307,491 989,698 21,225 1,318,414
</TABLE>
- ---------------
(1) Represents stock units awarded under the Directors Stock Unit Plan.
(2) Includes stock units awarded under the Directors Deferred Compensation Plan.
(3) Includes the following shares of restricted stock awarded under the 1998
Stock Option and Restricted Stock Plan: Mr. Iraola, 25,000 shares, Mr.
Whisler, 25,000 shares, and Mr. Peru, 15,000 shares.
(4) Mr. St. Clair, Senior Vice President and CFO, resigned from these positions
effective May 5, 1999 and retired from Phelps Dodge on June 1, 1999. Mr.
Peru was elected Senior Vice President and CFO on March 3, 1999, effective
May 5, 1999.
FORWARD-LOOKING INFORMATION
The U.S. securities laws provide a "safe harbor" for certain
forward-looking statements. This Proxy Statement contains forward-looking
statements, including statements concerning the business, future financial
position, results of operations, business strategy, estimated cost savings and
other benefits of our proposed business combination, plans as to dividends and
plans and objectives of management for future operations of Phelps Dodge, Asarco
and Cyprus Amax. Forward-looking statements can be found, among other places,
under "Reasons for the Proposed Acquisitions" and "Background of the
Transactions." Generally, the words "will," "may," "should," "continue,"
"believes," "expects," "anticipates" or similar expressions identify
forward-looking statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those
projected. Statements regarding the expected benefits of our proposed business
combination with Asarco and Cyprus Amax, the expected commence-
84
<PAGE> 88
ment dates of operations, projected quantities of future production, capital
costs, production rates and other operating and financial data are based on
expectations that Phelps Dodge believes are reasonable, but we can give no
assurance that such expectations will prove to have been correct.
Factors that could cause actual results to differ materially include, among
others:
- risks and uncertainties relating to the timing of completion of the
proposed Phelps Dodge/Asarco/Cyprus Amax business combination;
- the possibility that we will be unable to realize the expected cost
savings and other benefits from the combination;
- difficulties related to the integration of the businesses of Phelps
Dodge, Asarco and Cyprus Amax;
- the possibility that Phelps Dodge will not be able to combine with both
Asarco and Cyprus Amax;
- general U.S. and international economic, financial market and political
conditions;
- political and economic risks associated with operations outside the U.S.;
- the cyclical and volatile price of copper and other metals;
- unanticipated ground, water, weather or operating conditions or force
majeure events;
- unanticipated ore grade and geological problems or metallurgical and
other processing problems;
- delays in the receipt of or failure to receive necessary government
permits;
- changes in laws or regulations or the interpretation and enforcement
thereof;
- labor relations and accidents; and
- environmental risks.
Many such factors are beyond our ability to control or predict. Readers are
cautioned not to put undue reliance on forward-looking statements. We disclaim
any intent or obligation to update these forward-looking statements, whether as
a result of new information, future events or otherwise.
85
<PAGE> 89
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference the documents set forth
below that Phelps Dodge, Asarco or Cyprus Amax have previously filed with the
Securities and Exchange Commission (the "SEC"). These documents contain
important information about Phelps Dodge, Asarco and Cyprus Amax and their
financial condition.
Phelps Dodge has supplied all information contained or reflected in this
Proxy Statement relating to Phelps Dodge. If you are a shareholder, the Company
may have previously sent you some of the documents incorporated herein by
reference.
DOCUMENTS INCORPORATED BY REFERENCE ARE AVAILABLE WITHOUT CHARGE UPON
WRITTEN OR ORAL REQUEST TO: CORPORATE SECRETARY, PHELPS DODGE CORPORATION, 2600
NORTH CENTRAL AVENUE, PHOENIX, AZ 85004-3014, TELEPHONE (602) 234-8598. DELIVERY
WILL BE MADE BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE
BUSINESS DAY OF RECEIPT OF THE REQUEST.
The following documents filed with the SEC by Phelps Dodge are incorporated
herein by reference:
(i) Phelps Dodge's Annual Report on Form 10-K for the year ended
December 31, 1998 (revised information regarding Phelps Dodge's exploration
and mining properties is set forth in Schedule B to this Proxy Statement);
(ii) Phelps Dodge's Proxy Statement for the Annual Meeting of
Stockholders held on May 5, 1999;
(iii) Phelps Dodge's Quarterly Reports on Form 10-Q for the periods
ended March 31, 1999 and June 30, 1999;
(iv) Phelps Dodge's Annual Report on Form 11-K for the fiscal year
ended December 31, 1998; and
(v) Phelps Dodge's Current Reports on Form 8-K dated August 23, 1999,
August 26, 1999 and September 13, 1999.
The following documents filed with the SEC by Asarco are incorporated
herein by reference:
(i) Asarco's Annual Report on Form 10-K for the year ended December
31, 1998 (except for the report of Asarco's independent accountants
contained therein which is not incorporated herein by reference because the
consent of Asarco's independent accountants has not yet been obtained);
(ii) Asarco's Proxy Statement for the Annual Meeting of Shareholders
held on April 28, 1999;
(iii) Asarco's Quarterly Reports on Form 10-Q for the periods ended
March 31, 1999 and June 30, 1999; and
(iv) Asarco's Current Reports on Form 8-K dated July 20, 1999 and
September 7, 1999.
The following documents filed with the SEC by Cyprus Amax are incorporated
herein by reference:
(i) Cyprus Amax's Annual Report on Form 10-K for the year ended
December 31, 1998 (except for the report of Cyprus Amax's independent
accountants
86
<PAGE> 90
contained therein which is not incorporated herein by reference because the
consent of Cyprus Amax's independent accountants has not yet been
obtained);
(ii) Cyprus Amax's Proxy Statement for the Annual Meeting of
Shareholders held on May 6, 1999;
(iii) Cyprus Amax's Quarterly Reports on Form 10-Q for the periods
ended March 31, 1999 and June 30, 1999; and
(iv) Cyprus Amax's Current Reports on Form 8-K dated July 21, 1999,
July 14, 1999 and February 24, 1999.
All documents filed by Phelps Dodge, Asarco or Cyprus Amax pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 from
the date of this Proxy Statement to the date of the Special Meeting shall also
be deemed to be incorporated herein by reference.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Phelps Dodge will review for inclusion in next year's proxy statement
shareholder proposals received by December 3, 1999. Proposals should be sent to
the Secretary of the Company, 2600 North Central Avenue, Phoenix, Arizona
85004-3014.
Shareholder proposals not included in next year's proxy statement may be
brought before the May 3, 2000 annual meeting of shareholders by a shareholder
of Phelps Dodge who is entitled to vote at the meeting, who has given a written
notice to the Secretary of the Company containing certain information specified
in the by-laws and who was a shareholder of record at the time such notice was
given. Such notice must be delivered or mailed and received at the address in
the preceding paragraph no earlier than February 3, 2000 and no later than March
3, 2000.
If a shareholder notifies the Company after February 15, 2000 of an
intention to present a proposal at the Company's May 3, 2000 annual meeting (and
for any reason the proposal is voted on at such meeting), the Company's proxy
holders will have the right to exercise discretionary voting authority with
respect to such proposal.
By order of the Board of Directors,
Robert C. Swan
Vice President and Secretary
Phoenix, Arizona
September 13, 1999
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<PAGE> 91
SCHEDULE A
DIRECTORS AND EXECUTIVE OFFICERS OF PHELPS DODGE CORPORATION
The name, business address, present principal occupation or employment and
five-year employment history of each of the directors and executive officers of
Phelps Dodge Corporation are set forth below. Unless otherwise indicated, each
occupation set forth opposite an individual's name refers to employment with
Phelps Dodge and each individual has held such occupation for at least the last
five years. Each director and executive officer listed below is a citizen of the
United States.
<TABLE>
<CAPTION>
POSITION WITH PHELPS DODGE; PRINCIPAL
OCCUPATION OR EMPLOYMENT; 5-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- --------------------------------------------- -----------------------------------------
<S> <C>
Archie W. Dunham Mr. Dunham has been a Phelps Dodge
Conoco, Inc. director since 1998. He has been Chairman
600 North Dairy Hartford Road of the Board of Conoco, Inc. (integrated
Houston, TX 77079-1175 energy company) since 1999 and President
and Chief Executive Officer since January
1996. He was an Executive Vice President
of E.I. duPont de Nemours and Company
(chemical materials and energy company),
Conoco's former parent, from 1995 to
October 1998. He was a Senior Vice
President -- DuPont Polymers and DuPont
Chemicals and Pigments from 1987 to 1992,
and an Executive Vice President --
Exploration Production of Conoco from
1992 to 1995. Mr. Dunham is a director of
Conoco Inc. and Louisiana Pacific
Corporation. Age 60.
William A. Franke Mr. Franke has been a Phelps Dodge
Franke & Company, Inc. director since 1980. He has been Chairman
2525 E. Camelback Road and Chief Executive Officer of America
Suite 800 West Holdings Corporation since February
Phoenix, AZ 85016 1997 and Chairman of the Board of its
principal subsidiary, America West
Airlines, Inc. (airline carrier), since
1992. He was the subsidiary's Chief
Executive Officer from December 1993
until February 1997, and its President
from May 1996 until February 1997. He has
been President of Franke & Company, Inc.,
Phoenix, Arizona, an investment firm,
since 1987. He is a director of America
West Holdings Corporation, America West
Airlines, Inc., Central Newspapers, Inc.,
Beringer Wine Estates, Mtel Latin
America, Inc., AerFi Group Plc, and the
Air Transport Association of America. Age
62.
</TABLE>
A-1
<PAGE> 92
<TABLE>
<CAPTION>
POSITION WITH PHELPS DODGE; PRINCIPAL
OCCUPATION OR EMPLOYMENT; 5-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- --------------------------------------------- -----------------------------------------
<S> <C>
Southwood J. Morcott Mr. Morcott has been a Phelps Dodge
Dana Corporation director since 1991. He has been Chairman
4500 Dort St. of the Board of Dana Corporation
Toledo, OH 43615 (manufacturer and distributor of
automotive and vehicular parts) since
1990. From 1987 to 1995, he served as
Chairman of Hayes-Dana Inc. He was Chief
Executive Officer of Dana Corporation
from 1989 until February 1999, and Chief
Operating Officer from 1986 until January
1997. He was President of Dana
Corporation from 1986 to 1995. Mr.
Morcott is a director of Dana
Corporation, CSX Corporation and Johnson
Controls, Inc. Age 61.
J. Steven Whisler Mr. Whisler has been a Phelps Dodge
Phelps Dodge Corporation director since 1995 and has been Phelps
2600 North Central Avenue Dodge's President and Chief Operating
Phoenix, AZ 85004-3104 Officer since December 1997, and
President of Phelps Dodge Mining Company,
a division of Phelps Dodge, from 1991 to
October 1998. He was a Senior Vice
President of Phelps Dodge from 1988 to
December 1997 and Vice President of
Phelps Dodge from 1987 until 1988. He was
General Counsel of Phelps Dodge from 1987
until 1991. He is a director of
Burlington Northern Santa Fe Corporation
and Southern Peru Copper Corporation. Age
44.
Robert N. Burt Mr. Burt has been a Phelps Dodge director
FMC Corporation since 1993. He has been Chairman of the
200 East Randolph Drive Board and Chief Executive Officer of FMC
Chicago, IL 60601 Corporation (chemicals and machinery for
industry, agriculture and government)
since 1991. He is a director of FMC
Corporation and Warner-Lambert Company.
Age 61.
</TABLE>
A-2
<PAGE> 93
<TABLE>
<CAPTION>
POSITION WITH PHELPS DODGE; PRINCIPAL
OCCUPATION OR EMPLOYMENT; 5-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- --------------------------------------------- -----------------------------------------
<S> <C>
Robert D. Krebs Mr. Krebs has been a Phelps Dodge
Burlington Northern Santa Fe Corporation director since 1987. He has been Chairman
2650 Lou Menk Drive and Chief Executive Officer of Burlington
Fort Worth, TX 76131-2830 Northern Santa Fe Corporation
(transportation) since June 1, 1999. From
April 1997 to May 31, 1999, he was
Chairman, President and Chief Executive
Officer of Burlington Northern Santa Fe
Corporation. From September 1995 to April
1997, he was President and Chief
Executive Officer of Burlington Northern
Santa Fe Corporation. From June 1988 to
January 1998, he was Chairman, President
and CEO of Santa Fe Pacific Corporation.
He is a director of Burlington Northern
Santa Fe Corporation. Age 57.
Douglas C. Yearley Mr. Yearley has been a Phelps Dodge
Phelps Dodge Corporation director since 1986 and has been Phelps
2600 North Central Avenue Dodge's Chairman of the Board and Chief
Phoenix, AZ 85004-3014 Executive Officer since 1989. He was
President of Phelps Dodge from 1991 until
December 1997. He was President of Phelps
Dodge Industries, a division of Phelps
Dodge, from 1988 until 1990, Executive
Vice President of Phelps Dodge from 1987
until 1989 and Senior Vice President of
Phelps Dodge from 1982 through 1986. He
is a director of J. P. Morgan & Co.,
Incorporated and its principal banking
subsidiary, Morgan Guaranty Trust Company
of New York, Lockheed Martin Corporation,
USX Corporation and Southern Peru Copper
Corporation. Age 63.
Paul Hazen Mr. Hazen has been a Phelps Dodge
Wells Fargo Bank director since 1988. He has been Chairman
420 Montgomery Street of Wells Fargo & Co. since November 1998.
San Francisco, CA 94104 He was Chairman and Chief Executive
Officer of Wells Fargo & Co., San
Francisco (bank holding company) and of
Wells Fargo Bank, N.A. (national banking
association) from January 1995 until
November 1998. He was President of Wells
Fargo & Co. and of Wells Fargo Bank, N.A.
from 1984 to 1994. He is a director of
Wells Fargo & Co., Safeway, Inc.,
Shanghai Commercial Bank Ltd., Vodaphone
AirTouch Plc and E. piphany, Inc. Age 57.
</TABLE>
A-3
<PAGE> 94
<TABLE>
<CAPTION>
POSITION WITH PHELPS DODGE; PRINCIPAL
OCCUPATION OR EMPLOYMENT; 5-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- --------------------------------------------- -----------------------------------------
<S> <C>
Manuel J. Iraola Mr. Iraola has been a Phelps Dodge
Phelps Dodge Corporation director since 1997 and has been
2600 North Central Avenue President of Phelps Dodge Industries, a
Phoenix, AZ 85004-3014 division of Phelps Dodge, since 1995, and
a Senior Vice President of Phelps Dodge
since 1995. From 1992 until 1995 he was
President of Phelps Dodge International
Corporation. Age 51.
Marie L. Knowles Mrs. Knowles has been a Phelps Dodge
ARCO director since 1994. She has been
333 South Hope Street Executive Vice President and Chief
Los Angeles, CA 90071 Financial Officer of Atlantic Richfield
Company (diversified energy company)
since 1996. From 1993 until 1996 she was
Senior Vice President of Atlantic
Richfield Company, and President of ARCO
Transportation Company, a former
subsidiary of Atlantic Richfield Company.
From 1990 to 1993 she was Vice President
and Controller of Atlantic Richfield
Company. Mrs. Knowles is a director of
Vastar Resources, Inc., URS Corporation
and America West Holdings Corporation.
Age 52.
Gordon R. Parker Mr. Parker has been a Phelps Dodge
10101 East Dry Creek Road director since 1995. He was Chairman of
Englewood, CO 80112 Newmont Mining Corporation from 1986
until his retirement in 1994. He was
Chief Executive Officer from 1985 until
1993. Mr. Parker is a director of
Caterpillar, Inc., Gold Fields of South
Africa, Gold Fields Limited and The
Williams Companies, Inc. Age 63.
Ramiro G. Peru Mr. Peru has been Chief Financial Officer
Phelps Dodge Corporation of Phelps Dodge since May 1999 and has
2600 North Central Avenue been a Senior Vice President since 1997.
Phoenix, AZ 85004-3014 He previously was appointed Vice
President of Phelps Dodge Mining Company
in 1993 and Vice President and Treasurer
of Phelps Dodge in 1995.
</TABLE>
A-4
<PAGE> 95
<TABLE>
<CAPTION>
POSITION WITH PHELPS DODGE; PRINCIPAL
OCCUPATION OR EMPLOYMENT; 5-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- --------------------------------------------- -----------------------------------------
<S> <C>
Timothy R. Snider Mr. Snider has been a Senior Vice
Phelps Dodge Corporation President of Phelps Dodge since 1998. He
2600 North Central Avenue is also President of Phelps Dodge Mining
Phoenix, AZ 85004-3014 Company. Before becoming Senior Vice
President, he was a Vice President of
Phelps Dodge, a position he held since
1997. He was Vice President, Arizona
operations, of Phelps Dodge Mining
Company. He previously served as
President of Phelps Dodge Morenci, Inc.
David L. Pulatie Mr. Pulatie joined Phelps Dodge as Senior
Phelps Dodge Corporation Vice President -- Human Resources in
2600 North Central Avenue March 1999. Before that, he was a Senior
Phoenix, AZ 85004-3014 Vice President of Motorola Inc.
S. David Colton Mr. Colton has been Vice President and
Phelps Dodge Corporation General Counsel of Phelps Dodge since
2600 North Central Avenue April 1998. Before that, he was Vice
Phoenix, AZ 85004-3014 President and Counsel for Phelps Dodge
Exploration, a position he held since
1995. Prior to that time, he was Senior
Exploration Counsel for the exploration
and development group of Phelps Dodge
Mining Company.
</TABLE>
A-5
<PAGE> 96
SCHEDULE B
ADDITIONAL INFORMATION REGARDING PHELPS
DODGE CORPORATION'S EXPLORATION AND MINING PROPERTIES
PD MINING -- EXPLORATION & DEVELOPMENT
Our exploration group's primary objectives are to increase copper reserves
through discoveries, acquisitions and joint ventures and, where appropriate, to
diversify into other metals, minerals and geographic areas. This group operates
in more than 30 countries and maintains offices in Australia, Austria, Brazil,
Canada, Chile, Eritrea, India, Indonesia, Madagascar, Mexico, Peru, the
Philippines, South Africa, the United States and Zambia.
The 1998 exploration program continued to place emphasis on the search for
and delineation of large scale copper, gold and other base metal deposits. We
expended $42.0 million on worldwide exploration during 1998, compared with $74.1
million in 1997 and $70.7 million in 1996. Approximately 26 percent of the 1998
expenditures occurred in the United States with 19 percent being spent at our
mine sites. This compares with 33 percent in 1997 (23 percent at mine sites) and
47 percent in 1996 (33 percent at mine sites). The balance of exploration
expenditures was spent principally in Australasia, Brazil, Canada, Chile,
Mexico, Peru and Madagascar.
During 1998, exploration efforts continued at our existing copper
operations. In New Mexico, additional mine-for-leach reserves were delineated in
the Tyrone area.
On May 7, 1997, we announced plans to resume production at our Ajo copper
mine in southern Arizona where mining operations have been suspended since 1984.
Environmental permitting is continuing while the project is on hold pending an
improvement in market conditions.
Environmental permitting is in progress to advance the development of our
Dos Pobres and San Juan deposits in the Safford District in eastern Arizona. The
Dos Pobres deposit contains a total of 286 million tons of leach material with a
grade of 0.39 percent copper. The San Juan deposit contains 272 million tons of
leach material with a grade of 0.28 percent copper. Additionally, the Dos Pobres
deposit contains 330 million tons of concentrator material with a grade of 0.65
percent copper.
Internationally, our explorations group completed a feasibility study on
the Ambatovy nickel/cobalt deposit in central Madagascar. Detailed drilling in
the district, which is located 80 kilometers east of the capital city of
Antananarivo, defined mineralized material of 210 million tons at 1.1 percent
nickel and 0.1 percent cobalt. Acid consumption by the ore is low, and the ore
is amenable to high pressure acid leach extraction for nickel and cobalt. The
feasibility study indicated there was a need for the price of nickel to increase
to make the project economical.
We completed a pre-feasibility study on our 70 percent-owned Piedras Verdes
property in Sonora, Mexico, in 1998. Results indicated leachable mineralized
material of 310 million tons at 0.37 percent copper. Metallurgical testwork is
continuing.
In 1998, we formed a Brazilian joint venture company with Companhia Vale do
Rio Doce (CVRD) under the name Mineracao Serra do Sossego S.A. (Sossego). The
venture agreement required us to spend approximately $4.5 million on exploration
and related activities in order to earn a 50 percent share in the venture.
Having completed our earn-in, the mineral rights and all initial investments
were transferred into the new company in December 1998. The deposit contains an
estimated 200 million tons at 1.2 percent copper with 0.31 grams of gold per
ton. Sossego is starting the necessary work to develop a pre-feasibility study
to further define the mineralized material and determine the viability of the
project.
B-1
<PAGE> 97
ORE RESERVES
Ore reserves at each of our active copper operations and at Safford, Ajo,
Ojos del Salado and Cobre have been estimated as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ESTIMATED AT DECEMBER 31, 1998 ESTIMATED AT DECEMBER 31, 1997
---------------------------------------------- -----------------------------------------------
MILLING LEACHING MILLING LEACHING
RESERVES RESERVES PHELPS RESERVES RESERVES PHELPS
---------------- ---------------- DODGE ---------------- ----------------- DODGE
MILLION % MILLION % INTEREST MILLION % MILLION % INTEREST
TONS COPPER TONS COPPER (%) TONS COPPER TONS COPPER (%)
------- ------ ------- ------ -------- ------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Morenci.................. 475.8 0.63 2,076.9 0.22 85.0 543.3 0.68 1,628.1 0.26 85.0
Chino.................... 350.3 0.62 483.0 0.30 66.7 368.9 0.62 520.8 0.30 66.7
Tyrone................... - - 466.3 0.32 100.0 - - 455.0 0.34 100.0
Cobre.................... 133.6 0.73 98.0 0.35 100.0 N/A N/A N/A N/A -
Candelaria*.............. 456.1 0.85 - - 80.0 475.8 0.88 - - 80.0
Safford**................ 330.0 0.65 558.2 0.34 100.0 330.0 0.65 285.0 0.39 100.0
Ajo...................... 150.0 0.56 - - 100.0 150.0 0.56 - - 100.0
Ojos del Salado*......... 18.7 1.32 - - 100.0 19.7 1.32 - - 100.0
</TABLE>
- ---------------
* The Candelaria and Ojos del Salado deposits also contained, respectively,
0.006 ounces and 0.008 ounces of gold per ton in 1998 and 1997.
** Safford deposit includes Dos Pobres and San Juan reserves in 1998 and Dos
Pobres reserves in 1997.
- --------------------------------------------------------------------------------
Our estimated share of aggregate ore reserves at the above named properties
at December 31 is as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Milling reserves (billion tons)............................. 1.6 1.6 1.3 1.2 1.0
Leaching reserves (billion tons)............................ 3.2 2.5 2.2 1.8 1.7
Commercially recoverable copper (million tons).............. 14.5 13.7 12.1 12.3 10.6
</TABLE>
- --------------------------------------------------------------------------------
Ore reserves are those estimated quantities of ore that may be profitably
mined and processed for extraction of their constituent values. Estimates of our
reserves are based upon our engineering evaluations of assay values derived from
samplings of drill holes and other openings. In our opinion, the sites for such
samplings are spaced sufficiently close and the geologic characteristics of the
deposits are sufficiently well defined to render the estimates reliable. Stated
tonnages and grades of ore do not reflect waste dilution in mining or losses in
processing. Leaching reserves include copper estimated to be recoverable from
leach reserves remaining to be mined at Morenci, Chino, Tyrone, Cobre and
Safford. Commercially recoverable copper includes copper estimated to be
recoverable from milling and leaching reserves and from existing stockpiles of
leach material at Morenci, Chino, Tyrone, Cobre and Safford after taking into
consideration waste dilution and losses in processing.
B-2
<PAGE> 98
Ore reserves at each of our other mining operations and investments at
year-end 1998 are estimated as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ORE PHELPS
RESERVES % DODGE
MILLION % CALCIUM INTEREST
TONS COPPER FLUORIDE (%)
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Southern Peru Copper Corporation*........................... 1.695.9 0.67 -- 13.9
Phelps Dodge Mining Limited................................. 27.9 -- 16.45 100.0
</TABLE>
- ---------------
* Southern Peru Copper Corporation deposits also contain approximately 790
million tons of leach material at a grade of 0.22 percent copper.
- --------------------------------------------------------------------------------
We hold various other properties containing mineral deposits that we
believe could be brought into production should market conditions warrant.
Permitting and significant capital expenditures would be required before
operations could commence at these properties. The deposits are estimated to
contain the following mineralized material as of December 31, 1998:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SULFIDE MATERIAL LEACH MATERIAL PHELPS
---------------- ------------------------- DODGE
MILLION % MILLION % % INTEREST
LOCATION TONS COPPER TONS COPPER NICKEL (%)
---------- ------- ------ ------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
American Mountain........................ Arizona -- -- 140 0.25 -- 85.0
Cochise.................................. Arizona -- -- 210 0.40 -- 100.0
Copper Basin............................. Arizona 70 0.53 -- -- -- 100.0
Garfield................................. Arizona -- -- 1,000 0.27 -- 85.0
Lone Star................................ Arizona -- -- 1,600 0.38 -- 100.0
Sanchez.................................. Arizona -- -- 230 0.29 -- 100.0
Western Copper........................... Arizona 530 0.55 500 0.31 -- 85.0
Piedras Verdes........................... Mexico -- -- 310 0.37 -- 70.0
Southern Peru Copper Corporation......... Peru 370 0.62 -- -- -- 13.9
Ambatovy*................................ Madagascar -- -- 210 -- 1.10 100.0
</TABLE>
- ---------------
* Ambatovy deposit also contains 0.10 percent cobalt.
** Mineralized deposit or mineralized material is a mineralized body which has
been delineated by appropriately spaced drilling and/or underground sampling
to support a sufficient tonnage and average grade of metal(s). Such a deposit
does not qualify as a reserve, until comprehensive evaluation based upon unit
cost, grade, recoveries, and other material factors conclude legal and
economic feasibility.
- --------------------------------------------------------------------------------
B-3
<PAGE> 99
PROXY
PHELPS DODGE CORPORATION
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PHELPS DODGE CORPORATION
The undersigned shareholder of PHELPS DODGE CORPORATION hereby appoints
Douglas C. Yearley, J. Steven Whisler and Manuel J. Iraola, or any of them,
proxies of the undersigned, each with power of substitution, at the special
meeting of shareholders of the Corporation to be held at The Heard Museum, 2301
North Central Avenue, Phoenix, Arizona, on Wednesday, October 13, 1999 at 10:00
a.m., local time, and at any adjournments thereof, to vote all shares of Common
Stock of the Corporation held or owned by the undersigned, including any which
may beheld for the undersigned's account under the Phelps Dodge Corporation
Common Stock Investor Services Program administered by The Chase Manhattan Bank.
For those participants who hold accounts with Common Shares through the Phelps
Dodge Employee Savings Plan and/or The Phelps Dodge Corporation Supplemental
Savings Plan: The undersigned instructs the UMB Bank, N.A. as Trustee for the
Plans, to vote all shares or fractions of shares credited to the undersigned's
account as of the latest available processing date on or before October 13,
1999, as directed on the reverse side of this proxy. Those shares for which no
directions are received will be voted by the Trustee in its sole discretion.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY
- --------------------------------------------------------------------------------
<PAGE> 100
Please mark your votes
as [X] indicated in
this example
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
Proposal 1: Approval of the issuance of up to 17,082,064 shares of
Phelps Dodge common stock in connection with an exchange
offer made by Phelps Dodge to the shareholders of ASARCO
Incorporated and a subsequent merger of Asarco with a
Phelps Dodge subsidiary.
For Against Abstain
[ ] [ ] [ ]
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
Proposal 2: Approval of the issuance of up to 28,357,520 shares of
Phelps Dodge common stock in connection with an exchange
offer made by Phelps Dodge to the shareholders of Cyprus
Amax Minerals Company and a subsequent merger of Cyprus
Amax with a Phelps Dodge subsidiary.
For Against Abstain
[ ] [ ] [ ]
Where no direction is specified, this proxy will be voted FOR proposals 1
and 2 as recommended by the Board of Directors. In its discretion, the proxy is
authorized to vote upon such other business as may properly come before the
special meeting and any adjournments, postponements, continuations and
reschedulings thereof.
If you have any questions or need assistance, please contact Innisfree M&A
Incorporated toll-free at 1-888-750-5834.
Date:
------------------------------
------------------------------------
Signature
------------------------------------
Signature
------------------------------------
Title(s)
Please sign exactly as name appears
above. When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
<PAGE> 101
------------------------------------
Title(s)
Please sign exactly as name appears above.
When shares are held by joint tenants, both
should sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as such.
If a corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
