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Mining company settles derivative litigation for $137.5 million

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A mining company has reached a $137.5 million settlement of derivative litigation stemming from its 2013 acquisition of two firms in which some company directors and officers had been charged with conflict of interest.

Phoenix-based Freeport-McMoRan Inc. said in a statement Thursday that most of the settlement will be paid by its directors and officers liability insurance policies. It also said its directors and officers have denied any wrongdoing in the matter.

Freeport-McMoRan announced in December 2012 that its Freeport-McMoRan Copper & Gold Inc. unit was acquiring two interrelated companies, McMoRan Exploration Co. and Plains Exploration & Production Co., for a total of $10.3 billion in cash plus stock, according to plaintiff law firm Chimicles & Tikellis L.L.P., which is based in Haverford, Pennsylvania.

In a derivative action complaint filed later that month on behalf of its client, Harrisburg, Pennsylvania-based Dauphin County Employee Retirement Fund, the law firm charged that directors and officers of Freeport-McMoRan, including its chairman and former CEO, James R. Moffett, had substantial investments in McMoRan Exploration, which was in “a dire economic and operational condition” and that the acquisition was a “disloyal bailout.”

The lawsuit said the deal “vastly exceeded” McMoRan Exploration's value as an ongoing concern, and that these company insiders had benefited from the deal at the company's and its public stockholders' expense.

The settlement, which must still be approved by the Delaware Court of Chancery, provides that defendants in the case will pay a $137.5 million settlement to stockholders, according to Chimicles & Tikellis.

“Not only is this one of the largest stockholder derivative settlements, but it is also believed to be the first to ensure the benefits of such a settlement flow to stockholders in the form of a cash dividend,” said the law firm in its announcement.

Freeport-McMoRan said in its statement that $115 million of the settlement will be paid for by its insurers, plus an additional $22.5 million will be funded by the company. The settlement did not identify the insurers, and a spokesman could not immediately be reached for comment.

The company also said in its statement that defendants in the litigation “deny all allegations of wrongdoing and fault and believe that they acted properly at all times and committed no breach of duty whatsoever in connection with the transactions.”

“They are entering into this settlement agreement because they consider it desirable to have the claims settled and dismissed in order to avoid the substantial expense and distraction of continued litigation,” according to the statement.

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