Iron ore producer Cleveland-Cliffs buys coal supplier Alpha Natural for $10 billion

16 July 2008

Iron ore and coal miner Cleveland-Cliffs Inc today said that it would acquire coal producer Alpha Natural Resources Inc for $10 billion in cash and stock, expanding its coal assets and positioning itself to capitalize on the boom in the global steel industry.

Alpha mines vast amounts of metallurgical coal, which is used primarily to make coke, a key component in steel making. It also produces steam coal, used mainly by utilities as fuel for electricity generation.

Under the terms of the deal, Alpha Natural investors will receive 0.95 Cleveland-Cliffs shares and $22.23 in cash for every share of Alpha Natural they own. The offer is valued at $128.12 a share based on Cleveland-Cliffs' closing price on Tuesday and represents a premium of 35 per cent to Alpha Natural's closing price yesterday. Cleveland-Cliffs expects to pay about $1.7 billion in cash and about 71 million new shares of common stock.

The combined company, which will be named Cliffs Natural Resources, will include nine iron ore facilities and more than 60 coal mines located across North America, South America and Australia. On closing, Alpha shareholders will own about 40 per cent of the combined company, while Cleveland-Cliffs shareholders will own about 60 per cent.

The boards of both companies have approved the deal, which is expected to close by the end of 2008. JPMorgan Chase Bank is providing an underwriting commitment for up to $1.9 billion to finance the deal.

Based on analysts' current expectations for Cleveland-Cliffs, the company expects the deal to boost 2009 earnings. Upon the transaction's close, Cliffs Natural Resources would have estimated combined pro forma 2008 revenue of nearly $6.5 billion and EBITDA of $1.9 billion.