Alpha Makes All Stock Offer for Foundation Coal

Alpha Natural Resources and Foundation Coal Holdings announced that they have signed a definitive agreement under which the two companies will merge in an all-stock transaction. The combined company will be the third-largest coal producer in the U.S., with 2008 pro forma revenues of $4.2 billion. Alpha and Foundation together operate 59 coal mines and 14 prep plants and in combination will have one of the most expansive geographic footprints in the industry with reserves of more than 2.3 billion tons of coal. According to a press statement issued by Alpha, 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 and capitalize on projected future growth in coal demand.

Alpha is a leading eastern U.S. coal producer and the nation’s largest supplier of metallurgical coal, operating 50 mines and 10 prep plants in four states. Foundation has a diverse thermal coal production portfolio, with nine active mines, four prep plants, and coal reserves in Northern Appalachia (NAPP), the Powder River Basin (PRB), and Central Appalachia (CAPP) as well as reserves in the Illinois Basin. The combined company would have a market capitalization of $3.5 billion and enterprise value of $4 billion.

Under the terms of the agreement, Foundation stockholders will receive 1.084 shares of the new company for each share of Foundation, and each share of Alpha will automatically become one share of the combined company. Based on the closing price of Alpha on May 8, 2009, consideration received by Foundation stockholders was valued at $32.73/share. This will result in Foundation stockholders owning approximately 41% and Alpha stockholders owning approximately 59% of the new company on a fully diluted basis.

“We’re creating a true U.S. leader in the energy sector with balance, size, and scale,” said Michael Quillen, chairman and CEO, 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 optimization business, and from combined reserve holdings nearly four times the size of what we hold today.”

The all-stock transaction is valued at approximately $2 billion. The combined company will have one of the strongest balance sheets and credit profiles in the U.S. coal industry. The combined company expects to realize 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, president, Alpha, will become CEO of the combined company, and Kurt Kost, Foundation’s president and COO, will become president of the combined company. Upon completion of the merger, James Roberts, Foundation’s chairman and CEO, 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, Va. 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 transaction is expected to be completed later this year.

UtahAmerican Energy Announces Crandall Canyon Mine Settlement

All of the plaintiffs and defendants in the civil lawsuits stemming from the August 2007 accidents at Genwal Resource, Inc.’s Crandall Canyon mine have reached a comprehensive settlement for a confidential amount, according to a joint statement issued by all parties involved. The settlement culminates almost a year of negotiations between 16 groups of plaintiffs, seven defendants (five companies and two public entities), and six insurance companies.

“The geomechanics of coal mining under a mountain are extremely complex and difficult to assess. We have spent considerable time and effort attempting to determine what happened at the Crandall Canyon mine. And while we have learned from the accidents, we realize that no one may ever know what actually caused those accidents,” said Jason W. Hardin, an attorney for UtahAmerican.

Rather than engaging in lengthy, expensive, and unpredictable litigation, according to the statement, the parties decided to work together toward an amicable, reasonable settlement to put these matters in the past, provide for the victims’ and their families’ futures, and allow all concerned to move forward. The settlement comes less than two years after a massive bounce entombed six miners at the Crandall Canyon mine. Three more men lost their lives trying to rescue the miners. Although the terms were confidential, The Salt Lake Tribune described it as the largest settlement in Utah mining history, exceeding the $22 million agreement reached with heirs of 27 miners killed in a 1984 fire at the Wilberg mine.

Resolving the civil cases does not impact an ongoing criminal investigation by the U.S. Attorney’s Office. According to The Salt Lake Tribune, the U.S. Attorney for Utah said his office is still gathering information for the probe requested by the MSHA’s disaster investigation team and a U.S. congressman.

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