Arch Coal Inc. has announced that it has completed its acquisition of International Coal Group, Inc. through a merger, with ICG becoming a wholly owned subsidiary of Arch Coal. Before the merger, Arch acquired approximately 92% of ICG's outstanding shares of common stock in connection with its previously disclosed tender offer. The aggregate value of the transaction totalled US$ 3.4 billion, excluding costs associated with the redemption of ICG's outstanding debt and fees related to the transaction.
"We are pleased with the swift and successful completion of the ICG transaction, which will add tremendous value for Arch's stakeholders in the coming years," said Steven F. Leer, Arch's chairman and CEO. "This acquisition extends Arch's reach into every major US coal supply basin, enhances our low-cost and leadership position in core operating regions and creates a world-class global thermal and metallurgical coal franchise poised for growth."
With expected pro forma metallurgical sales of 11 million short t in 2011, Arch becomes the second largest US metallurgical coal producer and a top 10 global supplier to steelmakers. By capitalising on expansion opportunities, Arch expects to boost its metallurgical coal output to nearly 15 million short t by 2015 to serve under-supplied, growing global metallurgical markets.
The acquisition also adds nearly 13 million short t of low-cost Appalachian thermal production to Arch's vast domestic thermal coal portfolio, solidifying the company's No. 2 position among US-based coal miners and creating the US coal industry's most diversified producer. Additionally, the company expects to leverage its dedicated throughput capacity, logistics capabilities and strategic relationships to expand export shipments via both coastlines and the Gulf of Mexico to further penetrate and participate in the global growth markets.
"With the addition of ICG, Arch will possess one of the industry's most geographically diverse and strategically balanced operating profiles - with EBITDA nearly evenly split between eastern and western regions and between metallurgical and thermal markets," said Leer. "The combined entity will also provide a powerful foundation upon which to build out metallurgical and thermal volumes geared towards serving the domestic and international coal trade."
As a result of the acquisition, Arch's coal reserves will increase 25% to reach 5.5 billion short t (pro forma as of Dec. 31, 2010), making it the second largest reserve holder in the US. At least 431 million short t of those reserves are characterised as metallurgical quality - comprised of low volatile coal, high volatile "A" and "B" coals as well as pulverised injection coal - giving Arch one of the most extensive and highest quality metallurgical coal reserve bases in the US industry.
"We believe this acquisition – the largest in company history – offers a compelling value proposition for our employees, our customers and our investors," said Leer. "The combined company will serve a broad mix of power producers, steelmakers and industrial accounts here and around the world – offering a vast metallurgical and thermal coal product slate and a wide range of logistical options for delivery."
Upon integration, Arch will operate 24 mining complexes across five US coal supply basins, with planned pro forma coal sales of 171 – 176 million short t in 2011. The company will employ roughly 7400 people and expects pro forma 2011 revenues of more than US$ 5 billion.
Arch currently estimates that the transaction will create synergies of $70 – $80 million/year, beginning in 2012. "We expect to integrate ICG quickly over the next 3 – 6 months and should fully realise the target synergies in the first full year of operation," said John W. Eaves, Arch's president and COO. "In fact, we have begun executing on our integration plans, which centre on improving the combined company's cost structure, exceeding the forecasted synergies and accelerating metallurgical coal development projects."
Aiding a smooth and fast integration process are the complementary management styles and workforces at Arch and ICG. Both companies share a deep commitment to workplace safety, environmental stewardship and the creation of shareholder value. Furthermore, the combined entity will boast a highly productive workforce with minimal legacy liabilities.
Arch financed the purchase of ICG with a combination of new debt and equity offerings completed in June. "The company successfully executed capital markets transactions to help prudently finance the acquisition, retain our existing credit ratings and preserve a strong balance sheet," said John T. Drexler, Arch's senior vice president and CFO. "Looking ahead, our ability to accelerate future development projects and bring forward those cash flows, while maintaining a low-cost operating structure across our regions, should unlock further value for the company and its stakeholders."
In the company's Q2 2011 earnings release and conference call, which is typically scheduled in late July or early August, Arch anticipates providing earnings guidance for the combined entity as well as a preliminary update on the purchase price allocation, synergy targets and estimated costs for the completion of the ICG transaction and its integration.
Arch Coal Inc. has also made several organisational announcements to address the needs of the expanded company following the acquisition of ICG and its 13 active mining complexes.
"I am confident that the operating leadership structure we are announcing today will help us deliver the full potential of this powerful combination," said Eaves.
The company named three group presidents: Ken Cochran, Gary Bennett and Charles Snavely, as well as Samuel Kitts to director of operational development. All four individuals will report to Paul Lang, Arch's senior vice president of operations.
Cochran has been named group president with responsibility for Thunder Basin Coal Company, the Arch Western Bituminous Group, Arch of Wyoming and the Otter Creek development. Cochran served as president of Thunder Basin Coal Co. for six years and previously worked 20 years for TXU. Reporting to Cochran will be Thunder Basin Coal Co. president Keith Williams and Arch Western Bituminous Group president Gene DiClaudio.
Bennett has been named group president with responsibility for the Mountain Laurel, Beckley, Coal-Mac, Cumberland River, Lone Mountain/Powell Mountain and Eastern mining complexes. In addition, Bennett will have responsibility for the eastern engineering, environmental and coal preparation groups at the company's office in Teays Valley. Bennett previously served as general manager of Arch's Coal-Mac operation and has 21 years of company service.
Snavely has been named group president with responsibility for the Vindex, Patriot, Wolf Run, Flint Ridge, Knott County, Hazard, East Kentucky, and Viper mining complexes as well as the ADDCAR business unit and the Tygart Valley longwall development. Most recently, Snavely served as ICG's executive vice president of mining operations. He previously served as ICG's vice president of planning and acquisitions and has 33 years of coal industry experience. Reporting to Snavely will be regional presidents, Don Vickers and Gaither Frazier.
Kitts has been named director of operational development. Most recently, Kitts served as ICG's senior vice president of business development and asset management. Previously, he served as senior vice president, planning and organizational development and held a number of other management positions with ICG since 2005. Kitts has 25 years of coal industry experience.
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