On December 21, 2012, Dauphin County filed a derivative action complaint on behalf of Freeport-McMoRan Copper & Gold Inc. (“Freeport” or the “Company”), in the Court of Chancery of the State of Delaware (the “Action”). The Action alleges wrongdoing by the Freeport directors for causing the acquisitions (the “Transactions”) by Freeport of McMoRan Exploration Co. (“MMR”) and Plains Exploration & Production Company (“PXP”) (which also owns 31.5% of MMR) at a grossly excessive price, to satisfy their own conflicted desires and subjecting Freeport to excessive risk. The Action alleges that the Individual Defendants, the majority of whom sat on more than one of the Freeport, MMR and PXP boards of directors, were plagued by massive and irreconcilable self-interests and stood to benefit personally in connection with the Transactions at the expense of Freeport.
On December 5, 2012, it was announced that Freeport-McMoRan Copper & Gold Inc. (“Freeport”) announced it had signed definitive agreements to acquire Plains Exploration & Production Co. (“PXP”) for $6.9 billion in cash and stock and McMoRan Exploration Co. (“MMR”) for $3.4 billion in cash. Under the terms of the agreements, Freeport-McMoRan acquired MMR, including PXP’s 31.6% ownership in MMR, pursuant to which MMR shareholders received $14.75 in cash and 1.15 units of a royalty trust, which holds a 5% overriding royalty interest in future production from MMR’s existing ultra-deep exploration properties, representing a 74% premium to its closing price before the deal was announced. Prior to the announcement MMR was trading near its 52-week low, amidst its announcement that a test to determine the productive capacity of one of its wells proved inconclusive.
Freeport, MMR and PXP had numerous overlapping directors and executive officers, led by James R. Moffett, who is Chairman and former CEO of Freeport and was Co-Chairman, President and CEO of MMR, all of whom held stock in MMR. Many market observers speculated that cash-rich Freeport was bailing out MMR and, by extension, Moffet and others’ substantial interests in MMR. Additionally, PXP and its insiders, two of which sat on the MMR Board, received substantial benefits, including Freeport stock and over $100 million in change in control benefits as well as the bailout of PXP’s significant interests in Freeport. Despite the size and transformational nature of the Transactions, Freeport stockholders were not permitted to vote on the Transactions.
The Action alleges that as interested parties in the Transactions, the Freeport Board was obligated to ensure that the Transactions were at a price that was entirely fair to Freeport and its stockholders and engage in a process that was also entirely fair. The Action further alleges that the Freeport Board members acted disloyally and caused Freeport to dissipate valuable corporate assets by satisfying their conflicted interests and causing Freeport to acquire MMR and PXP at unfairly high prices, exposing Freeport to substantial increased risk.
After the announcement of the Transactions, multiple actions were filed challenging the Transactions on behalf of Freeport. On January 8, 2013, Dauphin County filed a Verified Amended Derivative Action Complaint to include information from the preliminary proxies issued in connection with the Transactions. Concurrently therewith, Dauphin County filed a Motion for Expedited Proceedings and also a motion for consolidation, in which it sought to be appointed lead plaintiff and Chimicles & Tikellis to be appointed lead counsel.
On January 25, 2013, the Court entered an order consolidating the actions and appointed Chimicles & Tikellis as Co-Lead Counsel and Dauphin County as Co-Lead Plaintiffs. Additional related actions were filed and consolidated into this action. On July 19, 2013, Plaintiffs filed their Second Amended and Consolidated Derivative Action Complaint (“Second Amended Complaint”). On September 12, 2013 and October 10, 2013, Defendants filed motions to dismiss Plaintiffs’ Second Amended Complaint. The motions are fully briefed, and the Court heard oral argument on February 4, 2014 and reserved judgment. After the hearing, the parties engaged in settlement discussions, including several rounds of mediation guided by the Honorable Layn R. Phillips in an effort to reach a resolution.
On January 15, 2015, the parties filed with the Court a Stipulation and Agreement of Settlement, Compromise and Release, which was reached between Plaintiffs and certain of the Company’s directors and officers. The settlement, totaling $137.5 million and subject to approval by the Delaware Court of Chancery, will resolve shareholder derivative actions brought beginning in late 2012 relating to Freeport-McMoRan’s acquisition of its affiliate McMoRan Exploration and of Plains Exploration, and provides that Defendants will cause a dividend in the amount of $137.5 million to be paid to Freeport-McMoRan stockholders.
On March 16, 2015, the parties filed with the Court an Addendum to Stipulation and Agreement of Settlement, Compromise and Release, which was reached between Plaintiffs, certain of the Company’s directors and officers, and Credit Suisse Securities (USA) LLC (“Credit Suisse”), which acted as a financial advisor to Freeport in connection with the Transactions. The settlement, totaling $16.25 million and subject to approval by the Delaware Court of Chancery, will resolve claims against Credit Suisse for its role in the Transaction. The additional $16.25 million in settlement funds, which raises the settlement value to approximately $154 million, will consist of $10 million in cash, which Freeport will cause to be added to the $137.5 million to be paid to Freeport stockholders in the form of a dividend, and a $6.25 million credit redeemable by Freeport for assignments Credit Suisse performs for Freeport for a period of two years.
The Court approved the Settlement on April 7, 2015. A link to the Notice of Settlement and relevant documents pertaining to this Action appears below.