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Five Things You Need to Know: FCX Acquires PD: Who Wins and Who Wins, In Horrible Misconception, China Continues to Seek to Emulate Detroit, OPEC to Cut Again, It Could Always Be Worse..., Retirement Rip Off?


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. FCX Acquires PD: Who Wins and Who Wins

Freeport-McMoRan Copper & Gold (FCX) said last night that it would acquire Phelps Dodge (PD) for $25.9 billion in cash and stock to create the world's largest publicly traded copper company. The deal values PD at $126.46 a share, a significant premium above Friday's close of $95.02 on Friday. So, what's the bottom line? Who wins? And who wins more?

  • Besides the obvious winners, perhaps the biggest winner is the hedge fund Atticus Management, which owned a 9.97% stake in PD Barron's reported last month.
  • Atticus began building a substantial position in PD in August 2005, the newspaper reported, and as of Oct. 10 had spent $1.08 billion to purchase 16.83 million shares and another $28.3 million to purchase more than 3.5 million options.
  • It was no secret Atticus was seeking a buyer for PD.
  • Barron's noted in the same article that Atticus, which has a reputation as an activist shareholder known for pushing for either corporate buybacks or mergers, disclosed in a SEC filing in October that it had "met with several potential investors, including private equity firms and strategic buyers, to discuss each firm's possible interest in pursuing an acquisition of [Phelps Dodge]."
  • Another winner is SAC Capital Advisors LLC, Steven Cohen's $10 billion hedge fund firm.
  • Last Tuesday Bloomberg reported that SAC Capital bought 481,829 shares of PD, raising its stake to 1.7 million shares.
  • Meanwhile, according to Freeport's Chief Executive Officer Richard Adkerson, FCX shareholders will also come out big winners in the deal.
  • FCX shareholders will benefit from "significant cash-flow accretion, lower cost of capital and improved geographic and asset diversification," Adkerson said in a statement.
  • Doesn't anybody lose in this deal? Well, BHP Billiton will potentially lose its position as the world's largest publicly-traded mining company should the FCX/PD deal be approved by shareholders.
  • Oh, by the way, if copper prices have indeed peaked, then FCX and PD will have gone from being two large companies potentially hurt by a cyclical downturn in copper prices to one giant loser over-leveraged to copper.

2. In Horrible Misconception, China Continues to Seek to Emulate Detroit

China now has more car brands than the United States, the New York Times said Saturday. That sounds great and all, but the problem is China has only about the same number of car buyers as the United States. Oops.

  • As companies such as Fiat and PSA Peugeot Citroën compete with General Motors, Ford, DaimlerChrysler, Toyota and Nissan in Chinese joint ventures, China now has more car brands than the United States.
  • The problem, however, is the Chinese market still may not be big enough to
    support all the homegrown manufacturers as well as the foreign automakers trying to do business there, the New York Times reported.
  • While car sales in China have climbed 38 percent in the first three quarters of this year, automakers have increased their output even faster, the Times said.
  • The result is something quite familiar to U.S. car manufacturers: fierce competition and a slow erosion in prices.
  • The overall Chinese vehicle market is on course to reach 6.8 million vehicles this year, more than the Japanese market.
  • By comparison, the United States is on track for sales of almost 16.7 million cars and light trucks this year.

3. OPEC to Cut Again

Qatar's energy minister Abdullah bin Hamad Al-Attiyah suggested over the weekend that the Organization of Petroleum Exporting Countries (OPEC) will cut oil output further at their next meeting in December, according to the Kuwait Times.

  • In an interview on Saturday with Kyodo News of Japan, Al-Attiyah said recent global oil prices are volatile due to speculative trading in an oversupplied market.
  • Attiyah said he saw "no shortage" of oil in the market, given mild winters in countries such as Japan and the United States and high inventories of oil.
  • Algeria's Energy Minister Chakib Khelil also said on Sunday, "We may decide on a new reduction during our meeting in Abuja December 15, to further ensure oil price stability."
  • Qatar's energy minister this weekend also suggested OPEC would make additional oil output cuts beyond those agreed at the October meeting in Doha.
  • At Doha, OPEC members cut production by 1.2 million barrels a day to counteract falling oil prices.
  • OPEC next meets in Nigeria on December 15.

4. It Could Always Be Worse...

The $70 billion managed by CTAs (Commodity Trading Advisors) returned 1.4 percent on average this year because of the steepest currency losses since 1994, said San Diego researcher Daniel B. Stark & Co., Bloomberg reported.

  • "It's been brutal,'' Jeremy O'Friel, principal at Appleton Capital Management in New York, whose $150 million currency fund is down 11.7 percent this year, told Bloomberg.
  • "In the absence of volatility, it's very difficult to make money.," he said.
  • Bloomberg helpfully noted that commodity trading advisers would have done better buying corn or orange juice. Thanks!
  • The John W. Henry & Co. $1.25 billion Strategic Allocation Program lost 12.5 percent this year and plunged 19.2 percent in 2005.
  • John Henry serves as a stark reminder that things could always be worse. He also owns the Boston Red Sox.

5. Retirement Rip Off?

St. Louis attorney Jerome Schlichter is spearheading litigation that could shed light on the
opaque world of 401(k) fees, according to Bloomberg.

  • Schlichter's firm has filed civil suits on behalf of employees within the retirement plans of Boeing (BA), Caterpillar (CAT), Exelon (EXC), General Dynamics (GD), International Paper (IP), Kraft Foods (KFT), Lockheed Martin (LMT), Northrop Grumman (NOC)and United Technologies (UTX).
  • The complaints cover at least 400,000 workers, a small percentage of the more than 45 million Americans who have about $2.4 trillion invested in 401(k) plans, according to Bloomberg.
  • The litigation alleges the employers entered into largely undisclosed revenue-sharing
    agreements between fund managers and third parties who administered the plans.
  • Calling the fees "the big secret of the retirement industry,'' the suits claim that employees had no knowledge of the "excessive and unreasonable fees'' or how much these costs were diminishing their retirement funds.
  • What is a legal and prevalent practice in the industry -- splitting and sharing lucrative revenue from retirement plans -- is a little-known and largely hidden transaction, Bloomberg says.
  • Third parties are able to reap profits and pass along their expenses in the form of higher annual expense ratios on 401(k) mutual funds, which reduces total investment
  • The news that employees are possibly being ripped off in their retirement plans by hidden fees comes as no surprise to us.
  • Minyanville is aware of how difficult it is to find a good financial advisor.
  • When choosing a financial adviser, watch for red flags. If your financial adviser refers to you as a "mark," and your financial plan as a "grift," it could be a red flag. Get a second opinion.
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