Implications of Walter Energy's Western Coal Acquisition

| About: Walter Energy, (WLT)

As a convenient follow up to Thursday’s post, Walter Energy (WLT) announced Friday that they have entered into an agreement to acquire all of the outstanding common shares of Western Coal (WTN) for CAD$11.50 per share in cash, or 0.114 of a Walter Energy share, or for a combination thereof, representing a total enterprise value of CAD$3.3 billion ($3.3 billion), net of cash on the balance sheet for Western Coal.

The merger will create the world's leading, publicly traded "pure-play" metallurgical coal producer with total coal reserves of approximately 385 million tons. The result will be a more balanced production profile, combining Walter Energy's current high productivity Appalachian assets and Western Coal's high growth assets in Canada, the United States and the United Kingdom.

The combined company expects to produce in excess of 20 million tons of coal by 2012. It will also be the only producer with cost advantaged transportation access to the high growth Asian and South American seaborne metallurgical coal markets.

"This is a transformative transaction at a time when global demand for metallurgical coal is surging," said Joe Leonard, interim chief executive officer of Walter Energy. "Our combined production capacity and geographic footprint leaves us extremely well positioned to benefit from favorable sector dynamics driven by increased steel production in markets such as China, India and Brazil. Bottom line, this is the right transaction at the right time."

Following the completion of the transaction, Walter Energy will maintain its primary listing on the New York Stock Exchange under the symbol WLT and is also apply for a listing on the Toronto Stock Exchange. Three directors nominated by the Western Coal board of directors will be added to the Walter Energy board of directors. The senior management team, including the CEO, will be announced prior to the transaction's closing. The merger has been unanimously approved by both companies' and is expected to be completed by the second quarter of 2011.

The Board of Directors of Western Coal's review committee received financial valuations National Bank Financial and RBC Capital Markets. Morgan Stanley is acting as financial advisor and Simpson Thacher & Bartlett LLP and Osler, Hoskin & Harcourt LLP are leading the team of legal counsels.

On the news, Walter Energy is up 3% and Western Coal jumped 10% to match the tender.

Disclosure: No positions