Alpha Natural Resources and Foundation Coal Holdings have announced a merger plan that will create one of America’s largest coal producers in an all-stock transaction valued at $2 billion. One of the strongest balance sheets and credit profiles in the industry show 2008 pro forma revenues of $4.2 billion. The combined company will be the third-largest coal producer in the US, with 59 coal mines and 14 preparation plants and will have one of the most expansive geographic footprints in the industry, reserves of more than 2,300 Mt.
Alpha and Frontier say it will have “an attractive growth profile. The combined company’s scale of operations, diverse revenue stream, free cash flow generation capability and management depth will provide a platform to compete successfully in today’s market environment and capitalize on the projected future growth in coal demand.”
Alpha is a leading Eastern coal producer and the nation’s largest supplier of metallurgical coal to the steel industry, operating 50 mines and 10 coal preparation plants in four states. Foundation is a diversified producer of thermal coal used by electric utilities, with nine active mines, four preparation plants and coal reserves in Northern Appalachia, the Powder River Basin and Central Appalachia as well as reserves in the Illinois Basin.
The combined company would have an equity market capitalization of $3.5 billion and enterprise value of $4.0 billion as of today’s announcement.
“We’re creating a true US leader in the energy sector with balance, size and scale,” said Michael Quillen, Chairman and CEO of Alpha. “Combining our resources and experience puts us in an excellent position to compete in both domestic and international coal markets, using a diverse array of production sources and marketing channels. This merger is a compelling proposition for Alpha stockholders, who benefit from diversification in other coal-producing basins, from potential synergies that Foundation’s production sources may have with our coal blending and optimisation business, and from combined reserve holdings nearly four times the size of what we hold today.”
Kevin Crutchfield, Alpha’s President, said, “It’s particularly gratifying to execute on our previously stated intention to pursue transformational growth opportunities. I could not be more pleased with our merger partner, and I look forward not only to bringing our two organisations together through a seamless integration process, but also to pursuing additional growth opportunities.”
James Roberts, Chairman and CEO of Foundation, commented: “Today’s announcement is exciting and rewarding for our stockholders and our employees. Foundation stockholders not only receive a significant premium, but they also gain an opportunity to participate in the upside potential of a diversified company that possesses the scale and asset quality to successfully compete in today’s challenging market environment and on an expanded global stage. With one of the industry’s strongest balance sheets and credit profiles, our new company will be well situated to invest in our future growth, which presents additional prospects for our stockholders and our employees. We look forward to working with Alpha to realize the many anticipated benefits of this combination.”
The combined company expects to realise approximately $45 million in annual revenue and cost savings through administrative, sales and operating synergies beginning in 2010.
Upon completion of the merger, Quillen will become Chairman of the combined company. Kevin Crutchfield will become CEO of the combined company, and Kurt Kost, Foundation’s President and CEO, will become President of the combined company. Upon completion of the merger, Roberts will become a member of the combined company’s board of directors, which will consist of six directors from Alpha and four directors from Foundation.
The combined company will retain the Alpha name and will be headquartered in Abingdon, Virginia. The new company will continue to trade on the New York Stock Exchange under Alpha’s current ticker symbol ANR.
The boards of directors of Alpha and Foundation have each unanimously approved the terms of the definitive merger agreement and have recommended that their stockholders approve the transaction. The merger is subject to the approval of each company’s stockholders and other customary closing conditions including regulatory approvals. The transaction is expected to be completed later this year.
Approximately 88% of Alpha’s reserve base is high Btu coal and 83% is low sulphur, qualities that are valued by electric utilities that use steam coal. Alpha is also the nation’s largest supplier and exporter of metallurgical coal. Alpha and its subsidiaries currently operate mining complexes in four states, consisting of 50 mines supplying 10 coal preparation and blending plants. Alpha and its subsidiaries employ more than 3,600 people.
Through its subsidiaries Foundation Coal employs approximately 3,000 people and produces approximately 70 Mt/y of coal.
