Alpha to acquire Foundation in all-stock deal

13 May 2009

Alpha Natural Resources said Tuesday it plans to emerge as the third-largest US coal producer with a bid to buy rival Foundation Coal in a $1.4 billion all-stock deal

Foundation Coal shares jumped nearly 21 per cent following the announcement.

Consolidation moves across the coal industry have been on the cards in recent weeks and Tuesday's announcement by Alpha chief executive, Mike Quillen is seen to reflect the industry trend.

The Obama administration has added increased environmental scrutiny to the already tough operating conditions including declining demand, falling prices and tight credit to add to the industry woes.

According to Quillen industry sources had predicted that the Alpha-Foundation tie-up made a lot of sense as combined, the two companies would be well-financed with approximately $743 million in cash and available credit – and diversified. The companies would have 2.3 billion tons of coal reserves sourced from both higher-profit Appalachian mines and high-volume western operations. With their 91 million tons of annual production from 59 mines the company would rank third after Peabody Energy and Arch Coal.

Foundation Coal CEO James Roberts said both companies had been looking for partners. He added that pairing up with any other company would not have produced the same results.