The all-stock transaction, valued at $US2 billion, will give the two a total of 59 coal mines, 14 preparation plants and 2008 pro forma revenues of $4.2 billion.
The new company will have a very large foothold in the US coal fields, including Foundation’s expansive holdings in the Powder River Basin region, and have total coal reserve holdings of 2.3 billion tons.
It will retain the Alpha name and be headquartered in Abingdon, Virginia, and will be the third-largest producer in the US behind Arch Coal and Peabody Energy.
Foundation shareholders will get 1.084 shares of the new company for one share of Foundation, which was valued at $31.28 as of Monday evening. The company’s shareholders will own 41% of the combined producer, Alpha shareholders the remaining 59%.
Alpha noted it would take on Foundation debt totalling $530 million and would utilise cash on hand to repay $233 million of its borrowings.
"We're creating a true US leader in the energy sector with balance, size and scale," Alpha chairman Michael Quillen said.
"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.”
Alpha president Kevin Crutchfield concurred, noting he was “very pleased” to have Foundation as a merger partner.
"It's particularly gratifying to execute on our previously stated intention to pursue transformational growth opportunities,” he said.
“I look forward not only to bringing our two organisations together through a seamless integration process, but also to pursuing additional growth opportunities."
Foundation chairman and chief executive officer James Roberts said the new diversified company’s scale and asset quality would be of benefit to its shareholders, as it would be able to compete successfully in the domestic and international markets.
“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.”
The new, combined company is anticipated to record $45 million in annual revenue and cost savings beginning next year, which will be realised through “administrative, sales and operating synergies”
The transaction is expected to close later this year, subject to shareholder approval. Both boards unanimously approved the terms of the definitive merger agreement.
On the deal’s completion, Quillen will become chairman of the combined company and Crutchfield will take up the seat of CEO.
Foundation president and chief operating officer Kurt Kost will become president of the combined company, while Roberts will become a member of the board of directors, consisting of six Alpha directors and four Foundation directors.
Alpha and Cliffs terminated their $10 billion merger agreement in November last year, citing the volatile market as well as other issues.