Seeking to expand globally and diversify its portfolio, Arch Coal (NYSE:ACI) has scooped up rival International Coal (NYSE:ICO) for $3.4 billion in a deal that creates the second largest metallurgical coal supplier in the U.S.
At $14.60 a share, the transaction, announced Monday morning, reflects a 32% premium to International Coal’s closing price on Friday.
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The deal is the latest in the coal industry following Alpha Natural Resources’ (NYSE:ANR) $6.6 billion bid to buy Massey Energy (NYSE:MEE) and Walter Energy’s (NYSE:WLT) $3.3 billion proposal to purchase Western Coal.
The deal would make Arch a top-five global coal producer and marketer, with the top two positions in each of its three core operating regions.
“The acquisition of ICG is a significant strategic step that strengthens Arch’s position as a world-class, global coal franchise positioned for growth,” Steven Leer, Arch’s chief executive, said in a statement, adding the transaction will help it expand into global markets, diversify its thermal coal product slate and extend its portfolio into every major U.S. coal-producing basin.
Based on 2010 financial statements, the combined company will have $4.3 billion in revenues and $925 million of adjusted earnings before interest, tax, depreciation and amortization, with estimated annual synergies of $70 million to $80 million.
Both boards of directors have unanimously approved the terms of the transaction, which is structured as a tender offer to be followed by a merger. Shareholder holding about 17% of ICG’s shares have agreed to tender their shares in favor of the offer.
The transaction, subject to customary closing conditions and regulatory approvals, is slated to close in the second-quarter.