Coal miner Arch Coal Inc. (ACI), yesterday, commenced the previously announced tender offer to gain control of all outstanding shares of rival International Coal Group Inc. (ICO). Per the offer, Arch has agreed to pay $14.60 per share in cash, without interest, to Internal Coal shareholders who are willing to tender their shares. Arch Coal said its wholly owned subsidiary Atlas Acquisition Corp. will commence the offer on behalf of Arch.
Arch said the tender offer and withdrawal rights are scheduled to expire on June 14, 2011. Assuming the tender offer is completed, Arch intends to go ahead with a second-step merger pursuant to which non-tendering holders of International Coal common stock would be entitled to receive cash equal to the $14.60 offer price per share.
Arch and International Coal had agreed to merge their resources on May 2, 2011, following the receipt of unanimous approval from the boards of directors of both companies. The board of directors of International Coal recommended its stockholders to tender their shares pursuant to the tender offer.
Following the success of the tender offer, the Arch and International Coal merger is set to create the second largest U.S. metallurgical coal supplier and one of the top five overall global coal producers and marketers.
The combined company will benefit from the synergies of a balanced metallurgical and thermal coal portfolio, having unparalleled operational diversification in every major U.S. supply basin along with No. 1 or No. 2 positions in each of its three core operating regions. This will strengthen the company’s position as a world-class, global coal franchise all set to grow.
The transaction is expected to not only expand Arch’s participation in global met markets but also provide a powerful platform for future organic met coal production growth. It will also solidify the company’s position as one of the industry's lowest cost producers.
Arch expects the transaction to be accretive to earnings in 2012. Arch also expects to generate significant free cash flows based on a well-balanced product portfolio of low-cost, high-quality assets that will be sold in structurally under-supplied met markets and growing thermal coal markets.
Based on pro forma 2010 financial results, Arch expects the combined company to have total shipments of 179 million tons of coal, $4.3 billion in revenues and $925 million of adjusted EBITDA, with a balanced split of 50% of earnings generated from eastern operations and 50% from western operations.
Based in St. Louis, Missouri, Arch Coal engages in the production and sale of steam and metallurgical coal. The company also ships coal to domestic and international steel manufacturers as well as international power producers. One of the major competitors of the company is Peabody Energy Corp. (BTU).
Arch Coal currently retains a Zacks #3 Rank (short-term Hold rating), which supports our long-term Neutral recommendation on the stock.
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