Sherritt makes bid for Luscar coal fund

In partnership with the Ontario Teachers’ Pension Plan, a unit of Sherritt International (S-T) has made an offer to acquire all of the outstanding shares of the Luscar Coal Income Fund (LUS-T).

The total value of the transaction would be more than $900 million, comprising $317 million for the units, plus about $600 million to redeem an outstanding $100-million convertible debenture and refinance the long-term debt of Luscar and its related entities.

Luscar’s Coal Income Fund is an open-ended trust which has invested in the securities of Luscar, a coal company that produces about 38 million tonnes annually from mines in western Canada.

Luscar President Gordon Ulrich says the proposed offer “fails to recognize the underlying value of the company’s assets.” He notes that the price represents only a 10% premium to the Feb. 20 closing price of $3.17 per share before the announcement.

“The export coal market has improved substantially in recent months, and with the dramatic increase in the price of natural gas over the past year, opportunities for selling more coal into the domestic market have significantly increased,” he says. “We will be supporting the trustees in their efforts to ensure that unit-holder value is maximized.”

The Luscar Coal Income Fund has formed a special committe in response to the Sherritt offer. It has been given the mandate to consider the Sherritt proposal, consider alternatives, and make recommendations on these matters to the board.