A Tainted Mining Merger Unearthed, Resulting in One of the Largest Settlements in Court of Chancery History.In re Freeport-McMoRan Copper & Gold Inc. Derivative Litigation
Labaton Sucharow, as co-lead counsel, secured a total settlement of $153.75 million with Freeport's board of directors and Freeport's financial advisor for the deal, Credit Suisse. We first achieved a $137.5 million settlement with the board of directors of Freeport. The settlement terms contain an unprecedented provision, allowing direct payment to stockholders by means of a special dividend. Along with the cash settlement, Labaton Sucharow also negotiated certain corporate governance reforms to be implemented and maintained by Freeport for at least three years. Months later, Labaton Sucharow obtained another $16.25 million with Freeport's financial advisor, Credit Suisse.
According to shareholders of Freeport, the transaction was riddled with sweetheart deals and self-dealing, aimed to personally benefit the board of directors and in breach of the board's fiduciary duty to shareholders. The $20 billion deal to purchase Plains Exploration &Production Co. (PXP) and McMoRan Exploration Co. (MMR) demonstrated that the oil and gas industry is ripe for conflict of interest problems.
Along with serving on the Freeport board, Moffett was also the co-founder, co-chairman, president, CEO, and the largest individual shareholder of MMR. In an attempt to rescue his investment in MMR, which was in great financial danger, Moffett proposed an overpriced buy-out of MMR by Freeport. To secure this deal, Moffett had to obtain the cooperation of MMR's largest shareholder, PXP. He was able to do so by overpaying for the acquisition of PXP while lining the pockets of PXP's CEO with more than $200 million in cash and stock.
The overlapping boards and ownerships of the three companies created the ideal environment for a tainted merger agreement. On December 5, 2012, Freeport, PXP, and MMR announced that they had reached a deal, which shareholders were not given an opportunity to approve or decline. The market overwhelming reacted negatively to the bloated transactions. Freeport's stock price plummeted from $38.28 at the close on December 4, 2012 to a closing price of $30.81 on December 6, 2012—a decline of over 19 percent on extremely heavy trading volume.
After months of negotiation, we secured a landmark settlement on behalf of shareholders.