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With Stock At 15-Year Low, Freeport Co-Founder Walks Away With $80 Million Golden Parachute

Tyler Durden's picture




 

“He is the last of the old-time wildcatters,” Mike Madden, managing partner of private-equity firm BlackEagle Partners LLC says of departing Freeport-McMoRan executive chairman James R. Moffett, who is stepping down after falling commodity prices helped push the company’s shares to their lowest levels of the 21st century. 

Late in August, Carl Icahn disclosed an 8.5% stake in Freeport shortly after the company unveiled plans to cut 2016 capex by nearly a third, slash about 10% of its American workforce (around 1,500 jobs) and rein in production. Earlier in the month, Freeport cut its oil-and-gas capex plans for 2016 and 2017 by $900 million. Then, in December, the company said it would suspend its dividend and cut capex further.

Like other firms in the space, Freeport has been forced to trim the proverbial fat as depressed demand from China and the global deflationary supply glut have driven commodity prices into the ground (no pun intended). 

After Icahn’s disclosure, Freeport said it “maintains an open dialogue with shareholders and welcomes constructive input toward our common goal of enhancing shareholder value.” 

The problem for Icahn and others, is that shareholder value has been systematically destroyed rather than “enhanced.”

"Moffett’s last big gamble as head of the world’s largest copper miner was a $1.2 billion wrong-way bet six miles beneath the Louisiana coastline [where] he in 2007 staked much of the company’s future on an obscure cluster of gas-soaked rocks, hidden beneath coastal oil fields, that had been discarded by bigger operators including Exxon Mobil Corp." Bloomberg wrote on Monday. "After seven years of drilling, Freeport suspended work on fields with names like Davy Jones and Blackbeard in January."

Some of the problems stem from the 2013 acquisition of McMoRan Exploration Co. and Plains Exploration & Production. Those deals cost more than $9 billion, and came ahead of a truly epic downturn in crude. “Freeport paid $2.1 billion for McMoRan, an oil-and-gas company it had separated from in the 1990s, and $6.9 billion for Plains, a Houston-based rival,” WSJ recalls. “The deals in part were a bet that oil prices would remain high, but as the acquisitions quickly soured, Freeport shareholders alleged conflicts of interest led the firm to pay too much for the deals.”

As WSJ goes on to note, the combined entity saw its debt rise fivefold to $20 billion.

From the latest quarterly:

And from Q3 2012's 10-Q:

Ultimately, Freeport ended up paying nearly $140 million to shareholders to settle the dispute over the deals. 

Given the high debt burden, the company is now "depending on asset sales or a potential restructuring to avoid more extensive cost-cutting, CLSA's David Lipschitz, says. 

Moffett, who according to The Australian, does a legendary Elvis impression,  co-founded McMoRan Oil & Gas 46 years ago and helped orchestrate the merger with Freeport Minerals Co. T. Boone Pickens calls him "the best Gulf Coast geologist that I’ve ever known." 

When Carl Icahn succeeded in grabbing two board seats in October, he said he was set to discuss "capital expenditures, executive compensation practices and capital structure as well as curtailment of the issuer’s high-cost production operations." 

And while Icahn may ultimately get his way when it comes to capex cuts and the scaling back of uneconomic businesses, it looks as though executive compensation is one fight the billionaire will lose - or at least as it relates to Moffett who is departing with a glorious golden parachute that ultimately sums to around $80 million. Here's WSJ again:

He will receive $16.1 million in severance pay as well as $63.3 million in other retirement benefits that have accrued over his decades with the company, according to securities filings. His departure also locks in options for about 1.2 million Freeport shares that are currently worthless given the company’s low stock price; those shares could become valuable again should the stock rise significantly before they expire, according to one filing.

And here's Bloomberg: 

Life after Freeport-McMoRan Inc. will have its benefits for outgoing chairman James “Jim Bob” Moffett: namely, a payout that could reach $83.3 million plus $1.5 million in annual consulting fees.

 

The $83.3 million potential payout was calculated with 562,000 performance based restricted stock units and performance units. The value of the units could fall, lowering the end payout, or Freeport could raise or lower the number of shares Moffett receives based on his performance.

 

Moffett also had 5.5 million stock options, none of which has value until Freeport’s shares reach at least $18.98. The shares closed at $6.85 on Monday.

So apparently, this is Moffett's reward for helping to create the conditions that left the company unprepared for the current downturn. We wonder if, considering the following chart, a majority of shareholders support the $83 million package:

 

We close with one last quote WSJ, paraphrasing Moffett (who was known in the industry as "Jim Bob"):

On one occasion, he told shareholders worried about the prospects of a gas well that they needed only to “Trust Jim Bob.”

 

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Tue, 12/29/2015 - 21:45 | 6976364 JenkinsLane
JenkinsLane's picture

He looks like Soros' younger brother. 

Tue, 12/29/2015 - 22:34 | 6976530 Never One Roach
Never One Roach's picture

FCX is another 'Yes we can!" success story of destroying America and its jobs.

Wed, 12/30/2015 - 05:01 | 6977365 beemasters
beemasters's picture

Meanwhile, the Papuans whose lands and resources have been raped and stolen/destroyed get the short end of the stick thanks too to the local military and politicians that Freeport has successfully bribed.

Tue, 12/29/2015 - 21:48 | 6976374 y3maxx
y3maxx's picture

Moffatt may end up taking Icahn down with the ship.

Tue, 12/29/2015 - 21:54 | 6976387 Son of Captain Nemo
Son of Captain Nemo's picture

George Soro's "#2"?!!!

I dind't know the Hungarian Kike could stack his own shit that high!!!

Tue, 12/29/2015 - 21:55 | 6976399 wisefool
wisefool's picture

His left eye looks alot like harry reid's did after he shot his mouth off last year.

Go get your shinebox and your 501c3 paperwork.

Tue, 12/29/2015 - 22:01 | 6976408 LetThemEatRand
LetThemEatRand's picture

Only in a country whose laws are written by oligarchs and CEOs can a failed chairman walk away with nearly $100M after helming a company to near destruction.  If my small business fails, I fail along with it.  Funny how it is different for publicly traded companies who have the funds to bribe politicians to pass laws that allow such deals at the expense of workers and shareholders.

A perfect example of neo-feudalism in action.

Tue, 12/29/2015 - 22:19 | 6976467 Amish Hacker
Amish Hacker's picture

I don't get it. When a company pays a ridiculous fortune for a new CEO, they always say, "Well, we have to pay that much to attract the best talent."

Then the guy runs the company into the ground for a few years (or sometimes only a few months), and they give him another ridiculous fortune on his way out the door.

With the kind of money Moffett was making, he should have been able to play shortstop and bat 350.

 

Tue, 12/29/2015 - 22:36 | 6976542 Never One Roach
Never One Roach's picture
Ron Johnson is the former chief executive officer of J. C. Penney. He was responsible for a major rebrand of J. C. Penney, which later led to company shares declining 51% and his firing in 2013. Wikipedia
Tue, 12/29/2015 - 23:25 | 6976757 thinkmoretalkless
thinkmoretalkless's picture

It helps that it is OPM

Tue, 12/29/2015 - 22:27 | 6976500 NoWayJose
NoWayJose's picture

A good CEO will cut jobs and capex in a downturn - a bad CEO adds stock dilution at low prices - like this clown did!

Tue, 12/29/2015 - 22:51 | 6976549 Never One Roach
Never One Roach's picture

FCX is basically a good company but caught in the global downturn of commodites as well as Barry's terrible leadership domestically as well as globally. Long term I still think it may be a buy at this price but I'll research it.

 

I wont be surprised if many USA companies go bankrupt before Barry leaves the wh.

Tue, 12/29/2015 - 22:47 | 6976586 Juliette
Juliette's picture

Yeah, this is CAPITALISM, baby! Drive a corporation right against the wall and get millions in bonus payments! We got to get the brightest heads! We got to pay them millions! Woohoo!!!

Tue, 12/29/2015 - 22:59 | 6976672 Barrack Chavez
Barrack Chavez's picture

FCX, the company, was hemorrhaging money, so he issued massive amounts of debt -- then he got a nice retirement deal for himself. Let the muppets pay for the mess.

Bernanke saw the US economy hemorrhaging money, so he issued massive amounts of debt -- then he got a nice retirement deal for himself. Let the muppets pay for the mess.

I think there is a pattern here, just can't put my finger on it...

Tue, 12/29/2015 - 23:27 | 6976767 gregga777
gregga777's picture

Corporate executives in the United States of America are given unlimited license to loot their employer by various Federal government agencies with the Quid Pro Quo that the politicians will receive their usual bribes, that regulatory officials will receive lucrative post-government employment at the corporations they oversee, that law enforcement officers will receive post-government security consultant contracts at the corporations they protected from scrutiny while with the FBI, etc. That's the way things are done in the most corrupt nation in this spiral arm of the Milky Way Galaxy: the United States of America.

Tue, 12/29/2015 - 23:30 | 6976772 gregga777
gregga777's picture

Corporate executives in the United States of America are given unlimited license to loot their employer by various Federal government agencies with the Quid Pro Quo that the politicians will receive their usual bribes, that regulatory officials will receive lucrative post-government employment at the corporations they oversee, that law enforcement officers will receive post-government security consultant contracts at the corporations they protected from scrutiny while with the FBI, etc. That's the way things are done in the most corrupt nation in this spiral arm of the Milky Way Galaxy: the United States of America.

Tue, 12/29/2015 - 23:30 | 6976774 thinkmoretalkless
thinkmoretalkless's picture

Everything is short term and self interest. A logical by product of the "don't judge crowd" and moral irrelevancy.

Tue, 12/29/2015 - 23:32 | 6976784 Its Only Rock N Roll
Its Only Rock N Roll's picture

Why does Icahn keep investing in these highly levered up POS companies that have no chance of keeping their equity values above 0 during this melt down?  He did it with CHK.  He is doing it here.  He is well on his way with LNG too.  If he hates the High Yield debt markets so much why touch any of these over levered commodity businesses before they go BK?  Makes no sense. 

Tue, 12/29/2015 - 23:43 | 6976817 gregga777
gregga777's picture

Crony Capitalist Corporate executives excel at looting their corporations, looting workers pension plans and screwing their workers. Mitt Romney got obscenely rich looting American corporations and screwing the workers at Bain Capital. Carly Fiorina got obscenely rich looting Lucent and Hewlett-Packard and screwing the workers. IBM's corporate executives have become obscenely rich by looting IBM and screwing the workers. These are not exceptions to the rule, they are the rule. And it has the full approval of the Federal government and the political class. It's no coincidence that both Mitt Romney and Carly Fiorina ran for President.

Tue, 12/29/2015 - 23:44 | 6976822 Yen Cross
Yen Cross's picture

 Let's put things into perspective...

 Didn't the Department of Defence spend $ 450 million dollars to train [4-5] Iraqi soldiers last year?

 That was the outcome of that joke of an ISIS re-supply mission?

Wed, 12/30/2015 - 09:10 | 6977658 El Hosel
El Hosel's picture

Mo Shitgums, dude deserves a quail hunting trip with uncle Dick Chenney.

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