Walter Energy Inc., a producer of the southern Appalachians carbon steel, offered to buy the Western Canadian Coal Corp. for C $ 3,300,000,000 (3.2 billion) to increase access to commodities such as increased demand drives prices.
Walter Energy, based in Tampa, Florida, an offer for the outstanding common shares of Western Coal C $ 11.50 per share in cash and stock, the U.S. company said in a statement, adding that it is in exclusive talks. They also agreed to purchase a stake of 19.8 percent in the Western Coal, from the largest shareholder of Audley European Opportunities Master Fund Ltd. for C $ 630 million.
"A transaction with Western coal would transform our company," said Joe Leonard, interim executive director of Walter Power, in the statement. "The combined company would be the leading publicly traded pure-play producer of metallurgical coal in the world."
Producers are trying to add resources and expand the reserve price of coke and steel, coal feed. Demand from Asia caused prices in the fourth quarter, 62 percent from the previous year to $ 209 a tonne, according to a benchmark contract between BHP Billiton Ltd., the largest exporter, and Japanese steelmakers JFE Holdings Kobe Steel Ltd.
Superior Premium
Walter energy supply represents a premium of 59 percent to 20 days the average price of western coal C $ 7.23 on the Toronto Stock Exchange. That compares with an average premium of 24 per cent for deals in the coal industry, announced earlier this year .
"A premium of almost 60 percent seems a lot," said Sachin Shah, special situations and merger arbitrage strategist at Capstone Global Markets in New York. "As the largest shareholder who supports some kind of agreement will eventually happen."
Western coal rose C $ 3.38, or 46 percent to C $ 10.76 at 11:40 pm in Toronto. Walter Energy fell 34 cents, or 0.4 percent, to $ 94.37 on the NYSE stock exchange.
Walter Power begin due diligence "immediately" in order to reach an agreement within the next two weeks, Leonard said in a conference call.
Morgan Stanley is advising Walter, and Simpson Thacher & Bartlett LLP and Osler Hoskin and Harcourt LLP are lawyers. Western Coal is by Royal Bank of Canada, Cenkos Securities Plc, Goodmans LLP, Paul Weiss, Rifkind, Wharton & Garrison LLP and Llana and Hamlins LLP.
World steel production
Walter has provided over 50 percent growth in global steel production over the next decade, boosting consumption of coking coal. "China, Brazil and India will continue to see significant growth, this dynamic will increase demand," said Leonard.
Walter increase production by 36 percent to 9.5 million tonnes in 2012, while Western Coal, which operates in Canada, U.S. and Britain, aims to produce 11 million tons in the fiscal year through March 2013, 6.7 million tons in fiscal 2011, the statement said.
"The increased production and reserves position of the merged entity to leverage current and future force in the global metallurgical coal markets," said Walter.
Massey Energy Co., the largest coal producer in Appalachia, with 2.8 million tons of reserves, will consider proposals for merger of steel makers in a board meeting on November 21, CEO Don Blankenship said yesterday in New York. Very held U.S. producer Drummond Co., which has assets in Colombia, could be the target of BHP, UBS AG said on Nov. 5.
Walter West Coal Energy and will not pay penalties if a "definitive agreement" has not been reached and the exclusivity agreement between them is not binding, according to a separate statement from Western coal.
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