The deal would also help Freeport diversify, with its mining profile largely outside the U.S., and Plains and McMoRan concentrated in energy plays in California, Texas, and the Gulf of Mexico.
Freeport shares plunged in early trade, dropping more than 12 percent and wiping out gains made in the last five months, though at least one analyst said it was paying a fair price.
"I don't think the valuation for either of the (exploration and production) entities should surprise anyone," Global Hunter Securities analyst Curtis Trimble said.
The deal unites companies with a shared history. Both Freeport-McMoRan Copper & Gold and the company now known as McMoRan Exploration were spun off in the 1980s and 1990s from the former Freeport-McMoRan.
James Moffett is chairman of Freeport-McMoRan and also co-chairman and CEO of McMoRan Exploration. In addition, Plains owns nearly one-third of McMoRan's shares after a 2010 asset sale deal.
Freeport said it would pay $25 cash and 0.6531 shares of its common stock for each Plains share, adding up to $50 per share, or a total deal value of $6.9 billion.
It will pay $14.75 cash for each McMoRan share, or $2.1 billion, after taking into account shares in McMoRan that Freeport and Plains already own.
McMoRan shareholders would also get 1.15 units of a royalty trust for each share they hold. That trust would hold a 5 percent royalty interest in future production from McMoRan exploration properties in ultra-deepwater territories.
Shares in Plains leaped 23.6 percent to $44.55 in early trading, while McMoRan Exploration soared 75 percent to $14.84.
"Simply folding in McMoRan I don't think achieved the level of scale that would be material for a company the size of Freeport-McMoRan," Trimble said.
"But certainly, when you include the assets as well as the production upside Plains achieved from the recent Gulf of Mexico acquisition, you have a formidable entity with worldwide presence," he said, referring to a recent deal Plains did with BP.
Moffett will continue as chairman of the combined entity after the deal closes and Freeport's Richard Adkerson will be president, chief executive and vice chairman.
James Flores, currently chief executive of Plains, will be vice chairman of Freeport and chief executive of the oil and gas operations. The corporate headquarters will be in Phoenix.
JPMorgan Chase has agreed to provide $9.5 billion in financing, Freeport said, to cover the cash considerations and to repay Plains' term loans and revolving credit line.
Credit Suisse was financial adviser to the special committee of Freeport's board and Wachtell, Lipton, Rosen & Katz acted as legal adviser. Evercore Partners was the financial adviser to the special committee of McMoRan's board and Weil, Gotshal & Manges was legal adviser. For Plains, Barclays served as financial adviser and Latham & Watkins was the legal adviser.