Arch Coal and International Coal Group (ICG) announced they have signed a definitive agreement under which Arch will acquire all of the outstanding shares of ICG for $14.60 per share, in an all-cash transaction valued at $3.4 billion. The combined company will be the second largest U.S. metallurgical coal supplier and a top-five overall global coal producer and marketer. Arch said it will have a balanced met and thermal coal portfolio with unparalleled operational diversification in every major U.S. supply basin and the No. 1 or No. 2 position in each of its three core operating regions, according to Arch Coal.

“The acquisition of ICG is a significant strategic step that strengthens Arch’s position as a world-class, global coal franchise positioned for growth,” said Steve Leer, chairman and CEO, Arch Coal.

“ICG has assembled a high-quality portfolio of low-cost mining operations and reserves, and one of the industry’s most talented and productive workforces,” said Ben Hatfield, president and CEO, ICG. “By teaming up with Arch, we expect to realize tremendous value for the shareholders of both companies while ensuring that our operations achieve their full potential.”

Based on pro forma 2010 financial results, the combined company would 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. Additionally, Arch expects shareholders to benefit from estimated annual synergies of $70 million to $80 million.

Arch expects 2011 pro forma metallurgical coal sales to reach 11 million tons. Over the next three years, Arch anticipates met coal volumes from the combined operations to expand to more than 14 million t/y, with further opportunities for revenue growth emerging from significant blending opportunities between ICG’s low-volatile and rank A high-volatile met coals and Arch’s existing rank B high-volatile met products.

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