The two would hold diversified underground and surface assets in the US, Canada and the UK, and have strong Asian, South American, North American and European market positions.
In total, Walter and Western have total coal reserves of about 285 million tons on a pro forma basis, per the pair’s most recent disclosures. Walter produces about 7Mt of premium metallurgical coal, with organic expansion plans expected to increase that to as much as 9.5Mt in 2012, while Western Coal expects to produce 6.7Mt for the fiscal year ending March 2011 and has growth plans to meet 11Mt over the fiscal year ending March 2013.
Walter has agreed to purchase common shares from Audley Capital affiliates representing 19.8% of Western’s outstanding shares for $C11.50 per share, or total consideration of $C630 million, making the total enterprise value for the buyout proposal $C3.3 billion ($US3.2 billion).
"From a strategic perspective, a transaction with Western Coal would be transformational for our company," Walter interim chief executive Joe Leonard said.
"The combined company would be the leading, publicly traded 'pure-play' metallurgical coal producer in the world, with unique and strategic access to steel-producing markets in both the Atlantic and Pacific basins.
“The transaction would meaningfully diversify both companies' operating and development portfolios and provide new business opportunities which might not be available to either company on a stand-alone basis.”
The deal would also position the combined company well for further strategic growth opportunities.
The proposal by Walter is subject to due diligence and negotiation of definitive agreements. Western said it would work exclusively with Walter for a period of up to 14 days, expiring December 1, to come to a definitive agreement.
If one is not reached, no penalties will be incurred by either party.
The potential transaction is subject to regulatory conditions as well as the approval of Western shareholders.
During a telephone briefing Thursday morning, Leonard said the takeover proposal was indeed announced in an unusual way. He told media and shareholders that when the Audley stake became available, Walter opted to quickly turn its move into a full takeover bid.
“We have long understood the strategic nature of a combination with Western,” he said.
“It’s exactly what you would want in an acquisition.”
