Walter Energy in $3.2 billion bid to tap Asia coal demand
Thu Nov 18, 2010 9:56am EST
BANGALORE (Reuters) - U.S.-based Walter Energy Inc (WLT.N) is in talks to buy Canadian peer Western Coal Corp (WTN.TO) for $3.24 billion to form a steelmaking coal giant aimed at exploiting surging Asian demand.
China's steel production is seen rising by a tenth this year to 620-630 million tons, driving strong demand for steelmaking, or metallurgical, coal.
This has helped the Dow Jones U.S. Coal Index .DJUSCL to outpace the broader Dow Jones Industrial Average's .DJI 5 percent rise so far this year.
Walter Energy and Western Coal combined would have coal reserves of about 385 million tons and access to major steel producing markets across the globe.
Last week, the world's top mining equipment maker Caterpillar (CAT.N) signed a $7.6 billion deal to buy Bucyrus International (BUCY.O) as rapid development in emerging markets China and India spurs demand for iron ore and coal.
Walter Energy will pay C$11.50 a share in cash and stock, a near-56 percent premium to Western Coal's Wednesday close. Walter Energy has agreed to buy about 20 percent of Western Coal's shares from stockholder Audley Capital affiliates at that price.
Simmons & Co analyst Brian Gamble said the deal was expensive, but came as companies around the world were trying to add metallurgical coal -- which accounts for over 75 percent of Western Coal's production -- to their portfolios.
"That implies the valuation should be high," Gamble said. "We've seen international assets go at a significant premium to U.S.-based assets."
An added attraction is that Western Coal ships using the Ridley terminals on the Pacific Coast, which are relatively free, while Canadian peers Grande Cache Coal (GCE.TO) and Teck Resources (TCKb.TO) face congestion at the Westshore terminals, the country's largest coal export facility.
COAL M&A HEATS UP
The proposed deal comes amid a pick-up in M&A activity in the coal sector.
Coal India (COAL.BO), the world's largest coal miner, is in talks to buy mines from U.S. coal producers Massey Energy (MEE.N) and Peabody Energy (BTU.N). Massey and U.S. peer Alpha Natural Resources (ANR.N) are also on the prowl.
However, Simmons' Gamble believes Walter Energy has probably priced U.S. players out of any rival bid.
"It's entirely possible that someone comes in and outbids Walter for the assets, (but) it has to be someone from the international market," he said.
Shares of dual-listed, Vancouver-based Western Coal (WTN.L) jumped 46 percent to 670 pence in London. The stock rose 49 percent to C$10.98 in early trade in Toronto. Walter Energy shares opened more than 2 percent lower in New York.
reuters.com |
