Sherritt Coal ups offer, Luscar Fund accepts

The Sherritt Coal partnership has sweetened its bid for all of the outstanding units and debentures of the Luscar Coal Income Fund (LUS.UN-T), having finally gained access to the fund’s data room. Sherritt Coal is a partnership between Sherritt International (S-T) and the Ontario Teachers’ Pension Plan.

The fund’s trustees and senior officers have agreed to unanimously recommend acceptance of the new offer and tender their own units and debentures. Luscar’s financial advisors, Scotia Capital and Merrill Lynch Canada, say the offer is fair to the unit holders.

Under the new offer, holders can exchange each of their units for $4 or one restricted voting share of Sherritt. The offer is limited to an aggregate of 25 million Sherritt shares. On April 23, Sherritt shares closed at $4.37 on the Toronto Stock Exchange. The company has 72.4 million shares outstanding. If unit holders choose to receive more than the available 25 million Sherritt shares, each holder will receive a pro rata allocation of the shares, plus a cash payment based on the cash price of $4 per unit.

Sherritt Coal’s offer for all of Luscar’s outstanding $100 million of 10% convertible debentures remains unchanged. The partnership will pay $1,050 in cash for each $1,000 principal amount of debentures, plus accrued and unpaid interest.

The fund’s trustees have agreed to pay Sherritt Coal a breakup fee of $22 million if, in certain circumstances, the fund accepts another takeover bid.

The new offer is subject to conditions, including the tender of at least 66.66% of the outstanding units and debentures. The offer expires at 5:00 p.m. (Toronto time) on May 8.

Under the old offer, unit holders could opt for $3.50 in cash or $2.38 in cash, plus 0.265 of a Sherritt share, per unit.

Sherritt Coal plans to mail its new offer to unit and debenture holders by April 27.

“We are very pleased that the Luscar trustees have recommended acceptance of our offer,” said Ian Delaney, Sherritt Coal’s chairman, in a prepared statement. “The offer provides an attractive cash price and the share exchange option gives unit holders the opportunity to benefit from an investment in both the Luscar operations and those of Sherritt International.”

On Tuesday, Sherritt shares opened 17 (or 3.9%) lower, at $4.20, on the Toronto Stock Exchange.

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