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:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
( ) Definitive Proxy Statement
(X) Definitive Additional Materials
( ) Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
JOINT FILING BY:
ASARCO INCORPORATED AND CYPRUS AMAX MINERALS COMPANY
___________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
N/A
___________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required.
( ) 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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total Fee paid:
( ) Fee paid previously with preliminary materials.
( ) 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:_______________________________________
(2) Form, Schedule or Registration Statement No.:_________________
(3) Filing Party:_________________________________________________
(4) Date Filed:___________________________________________________
As filed with the Commission on August 26, 1999
IMPORTANT UPDATING MATERIALS ATTACHED
To the Stockholders of ASARCO Incorporated and
Cyprus Amax Minerals Company:
The attached document contains important additional information about
the proposed business combination of ASARCO and Cyprus Amax. You should
read this document as well as the joint proxy statement and prospectus,
dated August 20, 1999, that is also included in this mailing carefully
before returning the enclosed proxy card or casting your vote in person at
the special meetings.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
AUGUST 20, 1999
Date of Report (Date of Earliest Event Reported)
ASARCO CYPRUS INCORPORATED
(Exact name of Registrant as specified in its charter)
DELAWARE 13-4070384
(State or Other Jurisdiction of (Commission File (IRS Employer
Incorporation or Organization) Number) Identification No.)
180 MAIDEN LANE, NEW YORK, NEW YORK 10038
(Address of Principal Executive Office) (Zip Code)
(212) 510-2000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS.
RECENT EVENTS INVOLVING PHELPS DODGE CORPORATION
In the morning of August 20, 1999, Messrs. Ward and McAllister
telephoned Mr. Douglas C. Yearley, Chairman and Chief Executive Officer of
Phelps Dodge Corporation ("Phelps Dodge"), to tell him that their Boards of
Directors had declined to pursue the three-way combination proposal by
Phelps Dodge. After Messrs. Ward and McAllister were unsuccessful in
reaching Mr. Yearley, they sent the following letter:
"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 Board 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/ /s/
Francis R. McAllister Milton H. Ward
Chairman and Chief Chairman, Chief Executive
Executive Officer Officer and President
Asarco Incorporated Cyprus Amax Minerals
Company"
Subsequently, Cyprus Amax and ASARCO issued the following joint
press release:
"DENVER and NEW YORK- 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 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."
In the afternoon of August 20, 1999, Mr. Yearley and Mr. J. Steven
Whisler, President and Chief Operating Officer of Phelps Dodge, conducted
an analysts' conference telephone call in which they announced that Phelps
Dodge planned to offer 0.4098 of a Phelps Dodge share to ASARCO
stockholders and 0.3135 of a Phelps Dodge share to Cyprus Amax
stockholders. Late in the evening
of August 20 Messrs. Yearley and Whisler sent the following letter to the
ASARCO Board of Directors and a substantially identical letter to the Cyprus
Amax Board of Directors.
"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 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 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 1,024% 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:
o 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;
o the financial strength of the combined company and
ability to create a world class portfolio of
cost-competitive mining assets;
o a strong and deep management team, at both the
operating and corporate levels, with strong
credibility in the marketplace;
o the ability to eliminate substantial overhead,
exploration, purchasing and other expenses through
the consolidation;
o the tremendous operating leverage of the combined
company, together with enough diversity in other
businesses to mitigate cyclical downturns;
o the immediate and substantial accretion to the cash
flow of the combined company resulting from the
transaction;
o 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;
o the total current annual copper production of the
combined company of 3.8 billion pounds and
attributable copper reserves of 80 billion pounds;
o the increased ability of the combined company to
compete for world-class projects;
o the ability of the combined company to reduce capital
expenditures;
o the strong, liquid balance sheet of the combined
company, with excellent access to capital; and
o 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, 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,
/s/ /s/
Douglas C. Yearley J. Steven Whisler
Chairman and President and
Chief Executive Officer Chief Operating Officer"
On August 23, 1999, the ASARCO Board of Directors and the Cyprus
Amax Board of Directors, each met with their respective legal and financial
advisors to consider the August 20 revised unsolicited proposal from Phelps
Dodge.
At the August 23, 1999 meeting the ASARCO Board of Directors
received reports from the management and their financial and legal advisors
concerning the revised Phelps Dodge proposal, discussions with Cyprus Amax
concerning the proposal and various strategic matters relating to the
proposal. The ASARCO Board of Directors unanimously concluded that the
proposal should be rejected and that all reasonable and appropriate steps
should be taken to successfully complete the combination with Cyprus Amax.
At that meeting, the Board also discussed financial and strategic responses
to the unsolicited revised proposal from Phelps Dodge and authorized
management to take all appropriate action in coordination with Cyprus Amax
to respond to the Phelps Dodge proposal for the purpose of protecting the
stockholder value generated by the business combination between ASARCO and
Cyprus Amax.
Following discussion between Cyprus Amax and ASARCO, on August 25,
1999, Mr. McAllister discussed with the ASARCO Board of Directors the
response to Phelps Dodge's proposal and the terms of a modification of
their current proposed merger of equals. It was the sense of the ASARCO
Board that the merger of equals should be pursued. In addition, on August
25, 1999 the Cyprus Amax Board of Directors met with its legal and
financial advisors and approved several items previously discussed with
ASARCO as set forth in the following joint press release issued by ASARCO
and Cyprus Amax on August 25, 1999 (the "Revised ASARCO/Cyprus Amax
Proposal"):
"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 will 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 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."
On August 25, 1999, Messrs. Ward and McAllister also sent the
following letter to Mr. Yearley which was attached to the August 25 press
release:
"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 Cyprus 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 communication, neither party has
waived any of its legal or other rights, or rights or obligations
under our merger agreement.
Sincerely,
/s/ /s/
Francis R. McAllister Milton H. Ward
Chairman and Chief Chairman, Chief Executive
Executive Officer Officer and President
ASARCO Incorporated Cyprus Amax Minerals
Company"
At its August 25, 1999 meeting, the Cyprus Amax Board of Directors
reconfirmed its recommendation that stockholders vote FOR adoption of the
merger agreement with ASARCO.
In approving the Revised ASARCO/Cyprus Amax Proposal and
reconfirming its recommendation to the stockholders, the Cyprus Amax Board
of Directors consulted with its financial and legal advisors and considered
a variety of factors, including the following:
1. The Board of Directors considered the advantages that the
business combination between Cyprus Amax and ASARCO provides
to Cyprus Amax and its stockholders, including that the
combined Asarco Cyprus would be a stronger, more efficient
competitor in the copper industry, would have an improved
ability to meet the challenges of low copper prices, would
be better able to benefit and would generate substantial
cash flow during the periods of strong copper prices, would
be able to lower costs through increased purchasing power,
and would have increased capitalization.
2. The Board of Directors considered that Merrill Lynch, Cyprus
Amax's financial advisor, rendered its oral opinion at the
August 25, 1999 board meeting that, as of
such date, the exchange ratio in the merger agreement with
ASARCO was fair from a financial point of view to the
stockholders of Cyprus Amax.
3. The Board of Directors considered that the special payment
of $5.00 per share to the stockholders of the combined
Asarco Cyprus would enable stockholders to receive an
immediate and significant cash benefit from the merger,
while leaving the combined company with a strong balance
sheet and sufficient liquidity.
4. The Board of Directors considered that the Revised
ASARCO/Cyprus Amax Proposal allows Cyprus Amax to continue
to pursue the business combination with ASARCO on a basis
that does not preclude Phelps Dodge (or any other potential
merger partner) from subsequently completing a business
combination with the combined company, while preserving the
opportunity for stockholders to realize the benefits of the
merger with ASARCO, even if Phelps Dodge determines not to
pursue its proposal.
5. The Board of Directors considered the fact that the business
combination with ASARCO is the subject of a definitive
agreement, as well as the terms and conditions of the merger
agreement, whereas the Phelps Dodge proposal is highly
contingent and no form of contract has been proposed.
6. The Board considered that the Phelps Dodge proposal does not
pay Cyprus Amax stockholders a sufficient price to reflect
the contribution of Cyprus Amax to a three- way combination
of Cyprus Amax, ASARCO and Phelps Dodge.
7. The Board of Directors considered that the joint Cyprus
Amax/ASARCO letter to Phelps Dodge dated August 25, 1999,
provided stockholders the opportunity to accept a
transaction involving Cyprus Amax, ASARCO and Phelps Dodge
if Phelps Dodge was willing to provide certain assurances as
to the terms of its proposal and to pay Cyprus Amax
stockholders a sufficient price to reflect the contribution
of Cyprus Amax to a three-way combination of Cyprus Amax,
ASARCO and Phelps Dodge.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE RECEIPT
OF THE SPECIAL PAYMENT
The following general discussion summarizes the anticipated
material United States federal income tax consequences of the receipt of
the $5.00 per share special payment by holders of ASARCO common stock or
Cyprus Amax common stock. This discussion addresses only such stockholders
who hold their ASARCO common stock or Cyprus Amax common stock as a capital
asset, and does not address all of the United States federal income tax
consequences that may be relevant to particular stockholders in light of
their individual circumstances or to stockholders who are subject to
special rules, such as:
o financial institutions,
o tax-exempt organizations,
o insurance companies,
o dealers in securities or foreign currencies,
o traders in securities who elect to apply a mark-to-market
method of accounting, foreign holders,
o persons who hold such shares as a hedge against currency
risk or as part of a straddle, constructive sale or
conversion transaction, or
o holders who acquired their shares upon the exercise of
employee stock options or otherwise as compensation.
The following discussion is not binding on the Internal Revenue
Service. It is based upon the Internal Revenue Code, laws, regulations,
rulings and decisions in effect as of the date of this document, all of
which are subject to change, possibly with retroactive effect. Tax
consequences under state, local and foreign laws are not addressed.
HOLDERS OF ASARCO COMMON STOCK OR CYPRUS AMAX COMMON STOCK ARE
STRONGLY URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE RECEIPT OF THE SPECIAL PAYMENT, INCLUDING THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS IN THEIR PARTICULAR CIRCUMSTANCES.
ASARCO, Cyprus Amax and Asarco Cyprus believe that the proper
characterization is that the special payment should be treated for United
States federal income tax purposes as having been received by the holders
of ASARCO common stock and Cyprus Amax common stock as consideration in the
business combination. There can be no assurance, however, that the Internal
Revenue Service will not assert that the special payment should be treated
instead as a distribution governed by Section 301 of the Internal Revenue
Code or that a court will not sustain the Internal Revenue Service in such
an assertion.
If the special payment is treated as consideration in the business
combination, a holder of ASARCO common stock who receives the special
payment should recognize gain (but not loss) on the exchange of ASARCO
common stock for Asarco Cyprus common stock and the special payment equal
to the lesser of:
o the amount of the special payment received by such holder,
and
o the excess, if any, of the sum of the special payment
received by such holder and the fair market value of the
Asarco Cyprus common stock received in the ASARCO merger
over the holder's tax basis in his or her ASARCO common
stock.
That gain should generally be capital gain. In the case of an individual
stockholder, any such capital gain generally will be subject to a maximum
United States federal income tax rate of 20% if the individual has held his
or her ASARCO common stock for more than 12 months at the effective time of
the ASARCO merger. Such holder's aggregate tax basis in the Asarco Cyprus
common stock
received in the ASARCO merger should equal the aggregate tax
basis of the ASARCO common stock surrendered, minus the amount of special
payment received, plus the amount of gain recognized.
If the special payment is treated as consideration in the business
combination, a holder of Cyprus Amax common stock who does not also
actually or constructively own ASARCO common stock should be treated as
having received solely Asarco Cyprus common stock and then as having had a
portion of that Asarco Cyprus common stock redeemed in exchange for the
special payment received by such holder and the cash received by such
holder instead of a fractional share interest in Asarco Cyprus common
stock. Such a holder should recognize gain or loss equal to the difference
between the amount of cash received and his or her basis in the Asarco
Cyprus common stock that is allocable to the shares deemed to be redeemed.
That gain or loss should generally be capital gain or loss and should be
long-term capital gain or loss if the holder's holding period is more than
12 months at the effective time of the Cyprus Amax merger. In the case of
an individual stockholder, any such long-term capital gain generally will
be subject to a maximum United States federal income tax rate of 20%. A
holder of Cyprus Amax common stock who also actually or constructively owns
ASARCO common stock should consult his or her tax advisor concerning the
amount and character of income, gain or loss recognized upon the receipt of
the special payment and cash in lieu of fractional shares of Asarco Cyprus
common stock.
If the special payment were instead treated as a distribution
governed by Section 301 of the Internal Revenue Code, the special payment
should be a dividend (taxable as ordinary income) to the extent of the
current and accumulated earnings and profits of Asarco Cyprus and then a
tax-free return of capital to the extent of the holder's basis in his or
her Asarco Cyprus common stock. Finally, any excess should be taxed as
capital gain. If the special payment were treated as a dividend,
stockholders of Asarco Cyprus that are domestic corporations should be able
to claim a dividends received deduction with respect to the special
payment, subject to the conditions and limitations contained in the
Internal Revenue Code.
Asarco Cyprus intends to withhold all applicable United States
federal withholding taxes from the special payment to non-U.S. holders of
Asarco common stock and Cyprus Amax common stock.
Assuming that the special payment is structured as a dividend as a
matter of Delaware law, the conversion price of the Asarco Cyprus Series A
convertible preferred stock will be adjusted in accordance with its terms.
This adjustment may be taxable to the holders of the Asarco Cyprus Series A
convertible preferred stock as a deemed distribution to which Section 301
of the Internal Revenue Code applies. Each holder of Cyprus Amax Series A
convertible preferred stock should consult his or her tax advisor
concerning the tax consequences of such an adjustment to the conversion
price.
LITIGATION
Cyprus Amax and its directors have been named as defendants in five
purported class actions commenced in the Court of Chancery, County of New
Castle, State of Delaware. ASARCO has been named as a defendant in one of
the actions as aiding and abetting the other defendants in the alleged
breach of their fiduciary duty. The plaintiffs in these lawsuits, who are
purported shareholders of Cyprus Amax, allege that: defendants have a legal
duty to negotiate with Phelps Dodge; that the Phelps Dodge proposal is more
attractive than the ASARCO-Cyprus Amax business combination;
and that defendants should conduct a negotiating or sale process in which
Cyprus Amax would accept the highest consideration available. The
complaints allege that the individual defendants have breached their
fiduciary duties to the stockholders of Cyprus Amax in negotiating the
ASARCO-Cyprus Amax business combination, and specifically by agreeing to a
provision in the merger agreement that prohibits Cyprus Amax at certain
times from negotiating with or supplying information to third parties such
as Phelps Dodge. The plaintiffs further allege that defendants breached
their duties in connection with setting the record date for the Cyprus Amax
special meeting. As relief, the complaints seek, among other things,
damages in an unspecified amount, injunctive relief prohibiting
consummation of the ASARCO-Cyprus Amax business combination, and an order
requiring Cyprus Amax to negotiate with bidders and/or sell itself to the
highest bidder. The time for defendants to answer or respond to the
complaints has not yet elapsed. Cyprus Amax believes that the claims
alleged in the complaints are without merit.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As stated in the joint August 25, 1999 press release, Asarco Cyprus
will not enter into change of control agreements that may become operative
during the 90 days following completion of the business combination. The
rights and benefits under the existing arrangements with the employees
(including the executive officers, as described in the joint proxy
statement and prospectus in "Interests of Certain Persons in the Merger")
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.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
The following pro forma combined balance sheet and pro forma
combined capitalization table restate the pro forma combined balance sheet
and pro forma combined capitalization table contained in the joint proxy
statement and prospectus dated August 20, 1999 to give effect to the
special payment of $5.00 per share of Asarco Cyprus common stock. The pro
forma income statements for the year ended December 31, 1998 and the six
months ended June 30, 1999 have not been restated because the effect of the
special payment is not material.
ASARCO CYPRUS INCORPORATED
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
HISTORICAL
CYPRUS HISTORICAL PRO FORMA PRO FORMA
AMAX ASARCO ADJUSTMENTS COMBINED
-------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents......... $1,275,416 $124,744 $ (9,000)(A) $ -
(545,040)(A) 846,120
Marketable securities.............. - 31,688 - 31,688
Accounts receivable
Trade, less allowance for
doubtful accounts................ 11,780 349,632 - 361,412
Other............................ 25,271 54,111 - 79,382
Notes receivable, net.............. 45,419 - - 45,419
Inventories........................ 293,449 305,037 62,200 (B) 660,686
Deferred tax asset................. 31,822 33,078 (13,800)(B) -
4,400 (C) 55,500
Prepaid expenses................... 28,359 70,558 - 98,917
-------- -------- -------- ---------
Total Current Assets............ $1,711,516 $968,848 (501,240) $2,179,124
Investments
Cost and available-for-sale........ 8,580 123,186 20,000 (B) 151,766
Equity method...................... 327,781 66,675 - 394,456
Properties - at cost, net............ 2,545,904 2,592,344 (827,200)(B) -
(136,917)(C) 4,174,131
Deferred tax asset................... - - 196,500 (C) 196,500
Other assets......................... 152,213 226,250 193,000 (B) -
(43,400)(C) $ 528,063
-------- -------- -------- ---------
Total Assets..................... $4,745,994 $3,977,303 $(1,099,257) $7,624,040
LIABILITIES
Current Liabilities:
Short-term debt.................... $248,560 $ 15,884 $ - $ 264,444
Current portion of long-term debt.. 78,996 31,462 - 110,458
Accounts payable................... 43,727 270,823 - 314,550
Accrued liabilities:
Payroll and benefits............. 44,365 38,105 - 82,470
Interest......................... 23,723 14,296 - 38,019
Closure, reclamation and
environmental reserves........... 74,734 52,799 - 127,533
Other accrued liabilities........ 120,538 105,214 9,000 (A) -
15,000 (D) 249,752
Taxes payable, other than income
taxes.............................. 16,315 14,998 - 31,313
Income taxes payable............... 81,292 90,304 - 171,596
Dividends payable.................. 9,385 - - 9,385
-------- -------- -------- ---------
Total Current Liabilities....... $741,635 $633,885 $ 24,000 $1,399,520
Long-term debt....................... 1,499,440 998,736 (53,300)(B) 2,444,876
Capital lease obligations............ 25,872 17,794 - 43,666
Deferred income taxes................ 13,914 27,735 60,500 (B) 102,149
Deferred employee & retiree benefits. 179,388 143,109 - 322,497
Closure, reclamation and
environmental reserves............... 177,678 76,120 125,000 (E) 378,798
Other................................ 29,156 86,944 - 116,100
-------- -------- -------- ---------
Total Non-Current Liabilities.... $1,925,448 $1,350,438 $132,200 $3,408,086
Minority Interest.................... 20,007 534,463 - 554,470
Shareholders' Equity
Preferred stock.................... 4,664 - - 4,664
Common stock....................... 1,063 679,991 (679,991)(F) -
748,100 (F) 749,163
Paid in surplus.................... 2,912,605 - - 2,912,605
Retained earnings ................. (767,776) 948,502 (948,502)(F) -
(545,040)(A) (1,312,816)
Accumulated other comprehensive
income............................. (5,348) (15,097) 15,097 (F) (5,348)
Treasury stock..................... (86,304) (154,879) 154,879 (F) (86,304)
-------- -------- -------- ---------
Total Shareholders' Equity......... $2,058,904 $1,458,517 $(1,255,457) $2,261,964(1)
-------- -------- --------- ---------
Total Liabilities and
Shareholders' Equity................. $4,745,994 $3,977,303 $(1,099,257) $7,624,040
========= ========= ========== =========
- ------------
(1) Total Shareholders' Equity reflects a special payment of $5.00 per
share to shareholders of Asarco Cyprus made as soon as possible
following the completion of the business combination. Taking the
special payment into account Equivalent combined pro forma book value
per common share at June 30, 1999 would be $18.61 for ASARCO and $14.24
for Cyprus Amax and pro forma combined Long-term debt/Total
capitalization and Net long-term debt/Total capitalization would be
46.9% and 36.8%, respectively.
NOTES TO THE PRO FORMA CONDENSED COMBINED BALANCE SHEET
(A) Estimated merger expenses include $9 million for Cyprus Amax's
financial advisory, legal, accounting, printing and similar costs. An
additional $9 million in financial advisory, legal, accounting,
printing and similar costs are expected to be expensed by ASARCO as of
the closing. Reflects a $545 million special payment of $5.00 per share
to shareholders of Asarco Cyprus made as soon as possible following
completion of the business combination. The special payment may be
structured as a dividend by Asarco Cyprus as a matter of Delaware
corporate law.
(B) Reflects acquisition adjustments as shown below, using the purchase
method of accounting, to record assets acquired and liabilities assumed
at estimated fair value.
AMOUNT
------------
(THOUSANDS)
Adjust Inventories to fair value................................... $ 62,200
Adjust Deferred tax asset to realizable amount using anticipated
Asarco Cyprus effective tax rate (($13,800) in current assets and
$60,500 in non-current liabilities).............................. (74,300)
Adjust Cost investments to fair value.............................. 20,000
Adjust Properties to fair value.................................... (827,200)
Adjust Other assets to fair value.................................. 193,000
Adjust Long-term debt to fair value................................ 53,300
------------
Estimated acquisition adjustment................................... $ (573,000)
============
(C) Reflects allocation of the excess of book value over estimated fair
value to Properties and Other assets using the purchase method of
accounting, assuming an exchange ratio of one share of Asarco Cyprus
common stock for each share of ASARCO common stock.
AMOUNT
------------
(THOUSANDS)
ASARCO common stock (at closing market price on June 30, 1999 of
$18.8125 per share).............................................. $ 748,100
Transaction costs (see Notes (A) and (D)).......................... 24,000
Estimated acquisition adjustment (see Notes (B) and (E))........... 698,000
Deferred tax effect of acquisition adjustments ($4,400 in current
assets and $196,500 in non-current assets)......................... (200,900)
Less: Net asset value of Historical ASARCO..............(1,458,517)
ASARCO merger expenses (see Note (A)).............. 9,000 (1,449,517)
------ ------------
Remaining book value in excess of the purchase price ($136,917 in $ (180,317)
Properties and $43,400 in Other Assets)........................... ============
Assuming the ASARCO exchange ratio is 1.0, then each $1 per share
increase (decrease) in the price of ASARCO common stock will decrease
(increase) the amount of book value in excess of the purchase price by
approximately $40 million (which would decrease (increase) pro forma
net income for the year ended December 31, 1998 and the six months
ended June 30, 1999 by approximately $1.5 million and $.7 million,
respectively).
(D) Estimated transaction costs associated with the mergers include $15
million in severance costs associated with reduced employment levels.
(E) Adjustment of $125,000 reflects estimated costs associated with the
rationalization of operations.
(F) Reflects issuance of 39.8 million shares of Asarco Cyprus common stock.
Each share of ASARCO common stock will be converted into one share of
Asarco Cyprus common stock and each share of Cyprus Amax common stock
will be converted into 0.765 shares of Asarco Cyprus common stock. The
actual number of shares of Asarco Cyprus common stock to be issued in
exchange for the Cyprus Amax common stock in the business combination
will be determined by reference to the exchange ratios and the actual
number of shares of Cyprus Amax and ASARCO common stock issued and
outstanding immediately prior to the effective time of the mergers. See
"Summary--The Business Combination." These adjustments also reflect the
elimination of ASARCO equity accounts.
PRO FORMA COMBINED CAPITALIZATION
The consolidated capitalization of Cyprus Amax at June 30, 1999,
and the pro forma consolidated capitalization of Asarco Cyprus giving
effect to the business combination and related transactions are set forth
below.
HISTORICAL PRO FORMA
----------- -----------
(IN THOUSANDS)
Long-Term Debt:
Cyprus Amax Minerals:
10 1/8% Notes Dues 2002................................. $ 150,000 $ 150,000
9 7/8% Notes Due 2001................................... 95,711 95,711
8 3/8% Notes Due 2023................................... 148,699 148,699
7 3/8% Notes Due 2007................................... 247,600 247,600
6 5/8% Notes Due 2005................................... 249,053 249,053
Cyprus Amax Term Loan Due 2001.......................... 100,000 100,000
Capital Lease Obligations............................... 25,872 25,872
El Abra Project Financing............................... 375,789 375,789
Cerro Verde Project Financing........................... 86,000 86,000
Pollution Control/Industrial Revenue Bonds.............. 46,588 46,588
ASARCO Business to be Merged (a):
8.5% Debentures Due 2025................................ 149,031 129,904
7.9% Secured Export Notes Due 2007...................... 148,657 143,127
7.875% Debentures Due 2013.............................. 99,758 87,278
7.375% Notes Due 2003................................... 99,757 94,928
7.0% Notes Due 2001..................................... 50,000 48,166
Pollution Control Bonds................................. 189,800 183,021
8.25% Bonds Due 2004.................................... 50,000 48,295
Capital Lease Obligations............................... 17,794 17,794
Revolving Credit Agreements............................. 180,000 180,000
Other................................................... 31,733 30,717
----------- -----------
Total Long-Term Debt.................................................. $ 2,541,842 $ 2,488,542
=========== ===========
Shareholders' Equity:
Preferred Stock, $1 Par Value, 20,000,000 Shares Authorized:
Series A Junior Participating Preferred Stock,
1,500,000 Shares
Authorized, None Issued or Outstanding............... $ - $ -
$4.00 Series A Convertible Preferred Stock, $1 Par
Value, $50
Liquidation Preference, 4,666,667 Shares Authorized,
4,664,302
Issued and Outstanding (Actual), 4,664,302 Issued
and
Outstanding (Pro Forma).............................. 4,664 4,664
Preferred Stock, No Par Value, 10,000,000 Shares
Authorized,
None Issued or Outstanding........................... - -
Common Stock, Without Par Value, 150,000,000 Shares
Authorized,
90,510,484 Shares Issued (Actual), 109,008,004 Shares
Issued (Pro Forma)...................................... 1,063 749,163
Paid-In Surplus.............................................. 2,912,605 2,912,605
Accumulated Deficit.......................................... (767,776) (1,312,816)
----------- -----------
2,150,556 2,353,616
Treasury Stock at Cost....................................... (86,304) (86,304)
Other Comprehensive Income................................... (5,348) (5,348)
----------- -----------
Total Shareholders' Equity............................................ $ 2,058,904 $ 2,261,964
=========== ===========
- --------------------
(a) Pro forma amounts of indebtedness reflect the principal amount of
ASARCO indebtedness assumed, adjusted to decrease such principal
amount to fair value.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
ASARCO CYPRUS INCORPORATED
By: /s/ Milton H. Ward
--------------------------------------
Name: Milton H. Ward
Title: Chairman and Co-Chief Executive
Officer
By: /s/ Francis R. McAllister
--------------------------------------
Name: Francis R. McAllister
Title: President and Co-Chief Executive
Officer
Date: August 25, 1999