Alpha To Take Over Foundation In US$2B Coal Merger

The Big fish Alpha Natural Resources (ANR-N) is using the attractive valuations created by the recession to get even bigger with a friendly all-stock takeover bid for Foundation Coal Holdings (FCL-N).

Valued at US$2 billion, the deal will create 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 companies say that the merged entity will be more competitive and 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. Based on Alpha Natural’s closing price on May 8, the deal values a Foundation share at US$32.73, a 37% premium over its five-day average price before the deal’s 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, but the merger is not conditional on any such amendments.

The companies expect to realize US$45 million in annual revenue and cost savings through synergies.

The deal, which requires shareholder and regulatory approvals, is expected to close later in the year.

With a workforce of 3,600, 50 mines and 10 preparation plants, Alpha mines both thermal and metallurgical coal. Foundation, with a head count of 3,000, nine mines and four preparation plants, only mines thermal coal.


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