Coal companies pursue conflicting merger proposals

Vancouver – Taking the position that a deal is a deal, Western Canadian Coal (WTN-T, WTN-L)) plans to proceed with a merger with NEMI Northern Energy and Mining (NNE-T) on the basis of the initially proposed share-exchange ratio. Taking the position that the agreement is “terminated,” NEMI plans instead to join a three-way combination of assets with Anglo Coal Canada, a unit of Anglo American (AAL-L), and Hillsborough Resources (HLB-T).

The impasse has the two Canadian coal companies unilaterally pursuing conflicting business arrangements, which unless resolved shortly, could be settled by battling barristers rather than by shareholders.

The initially proposed transaction in mid-May called for Western to offer one of its common shares for every 1.8 common shares of NEMI. At the time of the announcement, this represented a premium of 29% for NEMI shares. The intent was for NEMI to become a wholly owned unit of Western, resulting in an expanded company with annual production of 3 million tonnes of hard coking coal from western Canada by year-end, rising to 5 million tonnes by 2007.

The subsequent dispute involves differing opinions about written and verbal discussions to change the originally proposed share exchange ratio, among other matters. NEMI alleges that Western “demanded” a reduction in the number of shares to be received by its shareholders, and also “demanded” authority to direct management of its business prior to completion of the merger.

NEMI advised Western on July 10 that it had “accepted Western’s fundamental breach of the arrangement agreement as a repudiation of that agreement,” and that the agreement was therefore terminated.

Western meanwhile, has called for a court application to set a date for the twice adjourned meeting of NEMI shareholders to seek approval for the business combination. The company intends to complete the agreement on the originally announced exchange ratio. “While the transaction remains in the best interest to Western shareholders, it is now more favorable to NEMI shareholders”, the company states, adding that based on recent shares prices, the 1.8-to-1 exchange ratio represents a premium of about 50% to NEMI shareholders.

NEMI has signed a non-binding letter of intent with Anglo Coal and Hillsborough to consolidate their respective northeastern British Columbia coal assets into a company to be formed for the purpose.Based on a market evaluation of each company’s assets, Anglo Coal Canada would have a 60% interest in, and management control of, the new company, with NEMI and Hillsborough each holding a 20% interest.