Fording opens its books

Even as it forges ahead with its plan to convert to an income trust, Fording (FDG-T) confirms that it has inked confidentiality agreements and is in discussions with “a number” of interested third parties, which are currently going over the Calgary-based coal miner’s books.

During a conference call on Wednesday, Fording’s Chief Executive Officer, Jim Gardiner, refused to say exactly how many companies were involved, or if the Sherritt Coal Partnership II, an alliance between Sherritt International (S-T) and the Ontario Teachers’ Pension Plan, was one of the parties to sign an agreement.

Gardiner also refrained from answering whether a competing bid had emerged.

So far, the only known bid for Fording is the unsolicited $29-per-share bid launched by the Partnership in mid-October. The pair are looking to combine Fording’s assets with those of Luscar Coal, which they took over last year, and create an income trust of their own.

Fording rejected the offer and quickly turned around and announced its own plan to convert to an income trust. Looking to thwart the Partnership’s bid, Fording later announced that shareholders opting for its conversion plan would receive a cash bonus of $3 per share in addition to one trust unit in exchange for each of their shares.

In part to cover the cost of the cash sweetener, Fording has negotiated $425 million worth of replacement bank facilities with RBC Capital Markets. Currently, Fording has more than 50.6 million issued and outstanding shares.

Fording’s shareholders are slated to vote on the conversion plan at a special shareholder’s meeting on Dec. 20, a week before the Partnership’s offer expires.

Gardiner notes that Fording could still accept a competing bid, even if shareholders approve the conversion, provided it proves to be more valuable to shareholders than the reorganization.

To go ahead Fording’s plan needs the nod from at least two-thirds of all those voting at the meeting, plus a court ruling that the plan of arrangement is fair.

Only shareholders of record on Nov. 19 are entitled to vote.

Fording also said it plans to pay shareholders another 90 per share on March 31, if its plan goes through. No guidance past that was offered. The company says the cash distributions under the income trust will come quarterly rather than monthly to better match its irregular coal shipments and cash flow.

In the end, Fording estimates the cost of conversion at around $25 million.