3rd UPDATE: Walter Energy To Buy Western Coal In $3.3 Billion Deal
December 03 2010 - 3:16PM
Dow Jones News
Walter Energy Inc. (WLT) on Friday said it would buy mining
rival Western Coal Corp. (WTNCF, WTN.T), formally agreeing to a
$3.3 billion deal to create a North American steelmaking-coal
giant.
The combined company is expected to be the world's fifth-largest
producer of metallurgical coal used in steel production, with
strong access to global markets from shipping facilities linked to
both the Atlantic and Pacific oceans, the companies said.
Under the agreement, Tampa-based Walter will pay C$11.50 in cash
or 0.114 of a Walter share--or a combination of the two--for each
Western Coal share. Walter had originally announced its bid for the
Canadian company in mid-November, a 56% premium to Western's share
price at the time. The deal represents a 12% premium over Western's
closing price Thursday.
"This combination will give us undeniable met coal industry
leadership," Walter's interim Chief Executive Joe Leonard said on a
conference call discussing the merger.
Shares of Walter were recently up 3.2% at $109, while Western's
stock was up 11.94% at C$11.53.
The deal comes at a time when interest remains strong in
metallurgical coal as global economies recover and Chinese
steelmaking booms. Emerging steelmakers Brazil and India are
expected to add to demand, increasing market tightness as large new
mines aren't likely to come online for several years. Its relative
scarcity has turned metallurgical coal into a global commodity,
with seaborne shipments becoming increasingly important.
The sector is expected to see further deals with several mining
and steel companies reportedly looking at Richmond, Va.-based
Massey Energy Co. (MEE) and its 1.3 billion tons of metallurgical
coal reserves.
With 13 mines in the United States, Canada and the United
Kingdom, Walter and Western said their combination would create the
world's largest publicly traded "pure-play" metallurgical coal
producer. The combined company expects to produce in excess of 20
million tons of coal by 2012.
"We will grow to new markets while expanding our producing
properties," Leonard said, adding the company is aiming to become
the world's third-largest metallurgical coal producer "in the not
too distant future."
Vancouver-headquartered Western Coal has seen sharp growth
lately as commodity prices have boomed. The company said last month
that it saw record production during its fiscal second quarter,
helping earnings surge and revenue double. Meanwhile, Walter, in
October, said its third-quarter profit soared as well, with revenue
and margins sharply higher.
"The combined companies will have substantial met coal growth,
less mine-concentration risk and a solid transportation advantage,"
FBR Capital Markets analyst David Khani said in a note to
clients.
The deal will require approval from Canadian regulators and
follows their rejection last month of Anglo-Australian mining giant
BHP Billiton Ltd.'s (BHP, BHP.AU) hostile bid for Potash Corp. of
Saskatchewan (POT, POT.T), the world's largest producer of potash,
a crop nutrient.
Walter and Western executives on Friday downplayed regulatory
concerns.
"It's a pretty straightforward deal," Leonard said during the
conference call. "We don't see anything that's particularly
unusual."
Company leaders will visit with federal and provincial
authorities in Canada, he said. Canadian court approval is required
for the combination to be completed.
The company said Friday it expects the deal to improve its
bottom line during the first full year following the closing of the
deal, set for the second quarter. It will pay 70% cash and 30%
stock for Western Coal. Walter plans to apply for listing on the
Toronto Stock Exchange.
"With our positive view of met coal over the long term, seizing
an opportunity of this magnitude could prove wildly beneficial down
the road," Bill Herbert, an analyst with Simmons & Co., wrote
in a note to clients Friday.
-By Matt Whittaker, Dow Jones Newswires; 212-416-2139;
matt.whittaker@dowjones.com
(Nathan Becker contributed to this report.)
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