* Two Plains investors come out against deal
* Fall in Freeport's share price has reduced offer value
* Plains shares rise, trade at premium to Freeport offer
* Freeport says committed to completing deal, no reason to raise bid
May 7 (Reuters) - Proxy advisory firm ISS said Plains Exploration & Production Co. shareholders should vote against the more than $6 billion proposed takeover of the oil and gas company by Freeport-McMoRan Copper & Gold Inc., dealing a blow to the miner as shareholder resistance to the deal intensifies.
Hedge fund Arrowgrass Capital Partners said in a letter to Plains on Tuesday that it plans to vote its roughly 3.6 percent stake against Freeport's bid, arguing that Plains shares are worth more. Shareholder CR Intrinsic, with roughly a 3.8 percent stake in Plains, also opposes the bid.
Institutional Shareholder Services agreed in its report that the Freeport offer is too low, adding that "even at the announcement day valuation of $49.55, the transaction would offer little or no takeover premium to the current stand-alone value.
"The decline in FCX shares, which has eroded the market value of the merger consideration to just $44.53 - below the low end of our valuation range - only exacerbates the dissonance," ISS said.
The proxy advisory firm's recommendation hurts Freeport because some institutional shareholders automatically vote as ISS suggests.
Freeport said it remains committed to completing the deal, and that "there have been no material developments following the agreed terms that would indicate increased values for the Plains assets."
The company criticized ISS' analysis, noting that a Plains prospect recently announced relatively disappointing well results, oil prices have fallen since the deal was announced and that no other companies have expressed interest in bidding for Plains.
Plains shareholders are set to vote on the deal on May 20.
Plains declined to comment on the ISS recommendation.
Freeport struck two deals in December to buy Plains, as well as McMoRan Exploration Co., in what was then a bold, $9 billion bid to diversify into the U.S. energy sector.
But Freeport shares have fallen more than 17 percent since the deals were announced, hurt by a slide in both copper and gold prices. Freeport's drooping value has slashed the value of its cash and stock bid for Plains.
Last month, copper hit its lowest in a year and a half on weak data from China, the world's top consumer.
Freeport plans to boost its copper sales in the next few years by expanding existing mines, but it has said there are few good copper assets on the market. In the broader industry, mines are ageing, grades are declining and costs are on the rise.
Plains shares are up more than 30 percent from where they traded before Freeport's December bid and are trading nearly 3 percent higher than the value of Freeport's bid. They rose 1.8 percent on Tuesday to $46.92 on the New York Stock Exchange. Freeport shares were up 0.7 percent at $31.64.
Arrowgrass partner Michael Edwards said in his letter to the company that he believes Plains' recent strong operating performance would have driven the company's shares even higher.
"We believe the current Freeport proposal offers no or arguably negative premium for control," Edwards wrote.
Morningstar analyst Mark Hanson said he thought it was a lowball offer even before Freeport's shares fell.
"I think Plains has a pretty good asset base, and could be attractive to any number of people," he said.
But Susquehanna Financial Group analyst Duane Grubert said the offer is fair.
"The view that (Plains) would be trading close to $50 suggests that it would be the best performing stock in the group right now, and I don't think that has merit," he said.
Freeport's cash bid for McMoRan Exploration is not conditional on the closing of the Plains deal. But Grubert said that if Freeport buys only McMoRan, it would limit the combined company's opportunities in the energy space.
"The McMoRan merger gets them in the gas business long term, while the Plains deal puts them in deepwater oil exploration. It's really two different businesses. They could do fine with one without the other, but it would not be as compelling," Grubert said.