Coal Fields Merger Creates Big Player (ANR, FCL, CLF, KOL)

Today’s announcement of a merger between Alpha Natural Resources, Inc. (NYSE: ANR) and Foundation Coal Holdings, Inc. (NYSE: FCL) creates the third-largest coal producer in the US. The all-stock deal is worth about $2 billion including $530 million in Foundation debt, with Alpha issuing 1.084 shares for each Foundation share at a value of $32.73/share, a 37% premium to Foundation’s closing price on May 8.

Foundation shareholders will own about 41% of the new company, while Alpha shareholders will own 59%. The merged company, which will retain the Alpha name, will have a market cap of about $3.5 billion and reserves of more than 2.3 billion tons of coal.

Just last November, Alpha’s proposed merger with Cliffs Natural Resources, Inc. (NYSE:CLF) was canceled because the value of the deal had dropped from about $10 billion in July to about $4 billion. That deal was never terribly popular with analysts or shareholders, primarily because demand for iron ore and coal had caused prices to rise to startling heights.

Foundation shares are up more than 40% in pre-market trading, to $30.30. The 52-week range is $8.53-$89.72. Alpha shares are also up nearly 2%, to $28.86. The 52-week range for Alpha is $13.93-$119.30. Market Vectors Coal ETF (NYSE:KOL) has also jumped nearly 11% this morning.

It seems that this deal is being viewed as a winner all around.

Paul Ausick
May 12, 2009