Teck buys Fording Coal for $14.1 billion
TORONTO (Reuters) - Teck Cominco (TCKb.TO) said on Tuesday it will buy Fording Canadian Coal Trust (FDG_u.TO) for $14.1 billion in cash and stock, in a deal which will nearly double Teck's exposure to the lucrative metallurgical coal market.
ADVERTISEMENT
The transaction will see Fording unitholders receiving $82.00 in cash and 0.245 of a Teck Class B share per Fording unit, which Teck said represents an 18-percent premium to the 20-day volume weighted average price of Fording's New York-listed units.
Vancouver, British Columbia-based Teck already owns about 20 percent of Calgary, Alberta-based Fording.
Shares of Fording rallied $6.14, or 7.4 percent, to $88.63 in the wake of the news, putting it shy of the offer price of $91.72 per unit, based on Teck's share price.
By mid-morning, investors had pushed Teck's shares up 17 cents to $39.57.
The deal will give Teck full ownership of Elk Valley Coal by adding Fording's 60-percent stake to its own 40-percent holding. Elk Valley is the world's second-largest exporter of seaborne hard-coking coal, used mainly in steelmaking.
"It's a win-win-win situation," Teck Chief Executive Don Lindsay said on a conference call, touting both the premium Fording shareholders will receive and the immediate earnings and cash flow accretion that Teck will see.
"The long-term trends suggest that the economic development in China and India and Brazil and Russia and many other countries will continue to require steel and sea-borne metallurgical coal."
Teck estimates the deal should provide a 50 percent boost to its 2009 core earnings as forecast by analysts.
The deal had been anticipated by some analysts since Fording said last December it would explore strategic alternatives, including a possible sale. As a Fording shareholder and partner, Teck was seen as a logical buyer.
COAL BUSINESS TURNAROUND
Elk Valley's coal business, meanwhile, has enjoyed a sharp turnaround from last year, when it was hurt by weak prices and the sharp rise of the Canadian dollar.
Since then, metallurgical coal prices have soared, while the Canadian dollar has stabilized.
Teck said last week that Elk Valley's negotiated coal prices in 2008 had nearly tripled to $275 a tonne from $93 a tonne in 2007.
The transaction, which has been approved by Fording's board, will close by the end of October and is subject to regulatory approvals. It includes a $400 million break fee.
As part of the deal, Teck will issue about 36.9 million of its class B shares for proceeds of about $1.5 billion. It will also take on $9.8 billion of debt, about half of which it suggests could be prepaid within the first 14 months of the acquisition.
Teck said it would pay the Ontario Teachers' Pension Plan Board a so-called "top-up" fee of $105 million as part of an agreement following the company's purchase of Teachers' 11.25-percent stake in Fording in September 2007.
($1=$1.02 Canadian)
