By Lisa Kerner
Charlotte, N.C., May 12 - Alpha Natural Resources, Inc. and Foundation Coal Holdings, Inc. will combine in an all-stock transaction to form the third-largest coal producer in the United States with an enterprise value of $4 billion, the companies announced on Tuesday.
Foundation stockholders will receive 1.084 shares of the new company for each share of Foundation. Each Alpha share will automatically become one share of the combined company.
The per-share consideration is valued at $32.73 based on Alpha's closing price on May 8, a company news release said.
Approximately 50 million shares of the new company's common stock will be issued, and the combined company will assume approximately $530 million of Foundation net debt.
Alpha said the transaction, valued at $2 billion, is expected to close later this year following shareholder approval.
Once the transaction is complete, Alpha stockholders will own approximately 59% of the new company on a fully diluted basis and Foundation stockholders will own approximately 41%.
The merger agreement includes termination rights for both companies, including an Alpha termination fee of $75.4 million and a Foundation termination fee of $53.1 million.
Alpha said in conjunction with the merger it will use cash on hand to repay its existing senior secured credit facility, preserve its 2.375% convertible senior notes and seek to upsize its $85 million accounts receivable securitization facility.
Foundation's $298 million 7.25% senior notes and its senior secured credit facility will remain outstanding.
Operating as Alpha
The combined company will keep the Alpha name, and current Alpha chairman and chief executive officer Michael Quillen will become the chairman of the combined company.
Kevin Crutchfield, Alpha's president, will become CEO of the combined company, and Foundation president and CEO Kurt Kost will become president.
Foundation chairman and CEO James Roberts will become a member of the combined company's board of directors. The board will consist of six directors from Alpha and four directors from Foundation.
"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," Quillen said in the release.
"Foundation stockholders not only receive a significant premium, but they also gain an opportunity to participate in the upside potential of a diversified company that possesses the scale and asset quality to successfully compete in today's challenging market environment and on an expanded global stage," Roberts said in the release.
Citi advised Alpha, and Barclays Capital Inc. advised Foundation, a Linthicum Heights, Md.-based coal producer, on the transaction.
Alpha Natural Resources, located in Abingdon, Va., supplies Appalachian coal to the steel industry, electric utilities and other industries.
| Acquirer: | Alpha Natural Resources, Inc.
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| Target: | Foundation Coal Holdings, Inc.
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| Announcement date: | May 12
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| Price per share: | 1.084 shares of the new company; each Alpha share will become one share of the combined company
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| Termination fee: | $75.4 million for Alpha, $53.1 million for Foundation
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| Expected closing: | By the end of 2009
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| Stock price of acquirer: | NYSE: ANR: $28.86 on May 11
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| Stock price of target: | NYSE: FCL: $22.50 on May 11
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