Just two weeks after announcing an exclusivity agreement with a view to a strategic business combination, Walter Energy and Western Coal have agreed to a C$3.3 billion merger.
Walter Energy will acquire all of the outstanding common shares of Western Coal for C$11.50 per share in cash or 0.114 of a Walter Energy share, or for a combination subject to pro-ration.
The transaction will create the world’s leading, publicly traded, “pure-play” metallurgical coal producer with total coal reserves of approximately 385 million tons and a significant and growing production profile, balanced between Walter Energy’s current high productivity assets and Western Coal’s high growth assets in Canada, the United States and the United Kingdom.
The combined company expects to produce in excess of 20 million tons of coal by 2012. It will also be the only producer with cost advantaged transportation access to the high growth Asian and South American seaborne metallurgical coal markets.
“This is a transformative transaction at a time when global demand for metallurgical coal is surging,” said Joe Leonard, interim chief executive officer of Walter Energy. “Western Coal has an attractive high-quality metallurgical coal asset base and has embarked on an organic growth strategy that is expected to increase production more than 60 percent by fiscal 2013.
“It is a unique strategic fit with Walter Energy’s large scale, high-productivity mines which produce premium-quality metallurgical coal for customers in South America and Europe. Our combined production capacity and geographic footprint leaves us extremely well positioned to benefit from favorable sector dynamics driven by increased steel production in markets such as China, India and Brazil. Bottom line, this is the right transaction at the right time.”
The transaction is expected to be accretive to Walter Energy’s earnings per share in the first full year following the close of the transaction, with continued strong operating cash flows derived from existing production assets and high return on investment capital expected from development projects.
Keith Calder, president and chief executive officer of Western Coal, said, “We are pleased to be combining with Walter Energy and believe this transaction offers Western Coal’s shareholders immediate value as well as future upside from their ownership of approximately 14 percent of the combined company.
“The combined business will have substantial reserves and an experienced management team focused on safety, growth and shareholder value. With its size and financial strength, the combined business will have future growth opportunities that neither one of us would have on our own.”
