The big fish can use the attractive valuations created by the recession to get even bigger. This is the case in the latest merger in the coal sector, with Alpha Natural Resources (ANR-N) taking over Foundation Coal Holdings (FCL-N) in a friendly all-stock deal valued at US$2 billion.
The merged company will be the third-largest U.S. coal producer, with combined 2008 revenues of US$4.2 billion, behind Peabody Energy (BTU-N) and Arch Coal (ACI-N). It will have more than 2.1 billion tonnes in coal reserves, 59 mines and 14 preparation plants.
The merged companies believe that the giant resulting from the merger, beside competing in today’s market, will be better able to take advantage of the projected future growth in coal demand. It will have a stock market value of US$3.5 billion, and an enterprise value of US$4 billion.
Foundation shareholders will receive 1.084 shares in the combined company for each of their shares, valuing a Foundation share at US$32.73, a 37% premium over the 5-day average price before the deal announcement. This will create 50 million new shares in the combined company, which will also assume US$530 million of Foundation’s debt.
The companies have agreed to seek amendments to Foundation’s credit agreements and bond indentures. However the merger is not conditional on the amendments being obtained.
The companies expect to realize US$45 million in annual revenue and cost savings through synergies.
With a workforce of 3,600, and with fifty mines and ten preparation plants, Alpha mines both steam coal and metallurgical coal. Foundation, with a head count of 3,000, and with nine mines and four preparation plants, only mines steam coal.
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