Walter Energy And Western Coal Agree Merger

 

TIDMWTN 
 
RNS Number : 3248X 
Western Coal Corporation 
03 December 2010 
 

 
 
 
 
FOR IMMEDIATE RELEASE 
 
December 3, 2010 
 
 
        Walter Energy AND WESTERN COAL agree to CAD$3.3 Billion merger 
 
Transaction Creates the Leading, Publicly Traded, "Pure-Play" Metallurgical Coal 
   Producer Globally; Combined Company will have Unique Access to Pacific and 
                            Atlantic Seaborne Markets 
 
  Agreement Based on Walter's Previously Disclosed Merger Proposal which Valued 
       Western Coal at a 56 Percent Premium to its Pre-Announcement Price 
 
 Transaction Expected to be Accretive to Walter Energy on an Earnings Per Share 
                   Basis in the First Full Year After Closing 
 
(TAMPA, Fla. and Vancouver, B.C.) - Walter Energy (NYSE: WLT) and Western Coal 
Corp. (TSX: WTN, WTN.WT and AIM: WTN) announced today that they have entered 
into an arrangement agreement (the "Agreement") for Walter Energy to acquire all 
of the outstanding common shares of Western Coal for CAD$11.50 per share in cash 
or 0.114 of a Walter Energy share, or for a combination thereof, all subject to 
pro-ration. The transaction represents a total enterprise value of CAD$3.3 
billion (USD$3.3 billion), net of cash on the balance sheet for Western Coal. 
The Agreement follows announcements on Nov. 18, 2010 by Walter Energy and 
Western Coal that they had begun exclusive negotiations regarding the potential 
business combination. 
 
The transaction will create the world's leading, publicly traded, "pure-play" 
metallurgical coal producer with total coal reserves of approximately 385 
million tons[i] and a significant and growing production profile balanced 
between Walter Energy's current high productivity assets and Western Coal's high 
growth assets in Canada, the United States and the United Kingdom. The combined 
company expects to produce in excess of 20 million tons of coal by 2012. It will 
also be the only producer with cost advantaged transportation access to the high 
growth Asian and South American seaborne metallurgical coal markets. 
 
"This is a transformative transaction at a time when global demand for 
metallurgical coal is surging," said Joe Leonard, interim chief executive 
officer of Walter Energy. "Western Coal has an attractive high-quality 
metallurgical coal asset base and has embarked on an organic growth strategy 
that is expected to increase production more than 60 percent by fiscal 2013. It 
is a unique strategic fit with Walter Energy's large scale, high-productivity 
mines which produce premium-quality metallurgical coal for customers in South 
America and Europe. Our combined production capacity and geographic footprint 
leaves us extremely well positioned to benefit from favorable sector dynamics 
driven by increased steel production in markets such as China, India and Brazil. 
Bottom line, this is the right transaction at the right time." 
 
The transaction is expected to be accretive to Walter Energy's earnings per 
share in the first full year following the close of the transaction, with 
continued strong operating cash flows derived from existing production assets 
and high return on investment capital expected from development projects. 
 
Keith Calder, president and chief executive officer of Western Coal, said, "We 
are pleased to be combining with Walter Energy and believe this transaction 
offers Western Coal's shareholders immediate value as well as future upside from 
their ownership of approximately 14 percent of the combined company.  The 
combined business will have substantial reserves and an experienced management 
team focused on safety, growth and shareholder value. With its size and 
financial strength, the combined business will have future growth opportunities 
that neither one of us would have on our own." 
 
The agreed price of CAD$11.50 represented a 56 percent premium to Western Coal's 
closing share price of CAD$7.38 on Nov. 17, 2010, the day before Walter Energy 
announced it had submitted a proposal to Western Coal. 
 
Mr. Leonard concluded, "We see tremendous opportunity for the stakeholders of 
both companies and we will work closely with the Canadian national and 
provincial authorities to give careful attention to any sensitivities, provide 
detail on the potential of the combined company and to describe the broad 
benefits of this combination." 
 
Transaction Details 
 
The transaction will be effected by way of a statutory plan of arrangement 
pursuant to the Business Corporations Act (British Columbia). Under the terms of 
the agreement, Western Coal shareholders will be permitted to exchange each of 
their Western Coal shares for, at their election, CAD$11.50 in cash or 0.114 of 
a Walter Energy share (the "merger consideration"), or for some combination 
thereof.  All elections will be subject to proration if total cash elections 
exceed 70 percent of the total merger consideration to be paid or total share 
elections exceed 30 percent of the total merger consideration. 
 
The total amount of cash to be paid to Western Coal shareholders under the 
transaction is expected to be approximately CAD$2.1 billion (USD$2.1 billion) 
and the total number of shares of Walter Energy shares to be issued to Western 
Coal shareholders under the transaction is expected to be approximately 9 
million. These amounts assume that 278.1 million Western Coal shares participate 
in the arrangement, being a fully diluted amount of 290.9 million shares, less 
the 25.3 million shares acquired under the first closing of Walter Energy's 
share purchase agreement announced on Nov. 18, 2010.  This further assumes that 
the second closing under the share purchase agreement for a further purchase of 
29.3 million Western Coal shares is completed for the merger consideration. 
Should this second purchase occur under a separate applicable cash option it 
would not affect the merger consideration for remaining shareholders of Western 
Coal. The exchange ratio to determine the number of shares to be issued to 
Western Coal shareholders was based on a Walter Energy share price of USD$99.35, 
which is equal to the 20-day volume weighted average closing price as of Dec. 1, 
2010. Walter Energy has fully committed financing for the cash portion of the 
consideration. 
 
Following the completion of the transaction, Walter Energy will maintain its 
primary listing on the New York Stock Exchange under the symbol WLT. In 
connection with the transaction, Walter Energy will also apply for a listing on 
the Toronto Stock Exchange.  Upon completion of the transaction, three directors 
nominated by the Western Coal board of directors will be added to the Walter 
Energy board of directors. The senior management team, including the CEO, will 
be announced prior to the transaction's closing. 
 
The Agreement has been unanimously approved by both companies' boards of 
directors and is expected to be completed by the second quarter of 2011. 
 
An independent committee of Western Coal's board of directors, as part of the 
process and in accordance with applicable regulatory requirements, received a 
formal valuation of the Western Coal shares from National Bank Financial.  In 
addition, National Bank Financial has provided an opinion that, as of Dec. 2, 
2010, the consideration under the proposed transaction is fair, from a financial 
point of view, to Western Coal's shareholders other than Walter Energy, Audley 
Capital Advisors LLP and their respective associates and affiliates. The board 
of directors of Western Coal has also received an opinion from RBC Capital 
Markets that, as of Dec. 2, 2010, the consideration under the transaction is 
fair, from a financial point of view, to Western Coal's shareholders other than 
Walter Energy, Audley Capital Advisors LLP and their respective associates and 
affiliates. 
 
Morgan Stanley & Co. Incorporated is acting as financial advisor and Simpson 
Thacher & Bartlett LLP and Osler, Hoskin & Harcourt LLP are acting as legal 
counsel to Walter Energy. 
 
RBC Capital Markets is acting as financial advisor to Western Coal. Goodmans LLP 
is acting as Western Coal's Canadian legal counsel and Paul, Weiss, Rifkind, 
Wharton & Garrison LLP as Western's US legal counsel. Western Coal's UK advisors 
are Trowers & Hamlins LLP (legal) and Cenkos Securities plc (Nominated Advisor 
and Broker). National Bank Financial is acting as the independent valuator to 
Western Coal's independent committee. 
 
Regulatory Matters and Other Closing Conditions 
 
Completion of the transaction is subject to customary closing conditions, 
including Canadian court approvals, a favorable vote of at least (i) two-thirds 
of the votes cast by Western Coal shareholders (including Walter Energy and 
Audley Capital Advisors LLP) and (ii) a majority of the votes cast by Western 
Coal's shareholders excluding Walter Energy and Audley Capital Advisors LLP, at 
a special meeting  of shareholders, and the receipt of all necessary regulatory 
approvals.  Approval by Walter Energy shareholders is not required to complete 
the transaction.  The definitive agreement includes a customary non-solicit 
clause applicable to Western Coal and provides for the payment of a CAD$99 
million break-up fee if the transaction is terminated in certain circumstances. 
 
Western Coal will call a special meeting of shareholders to approve the 
transaction.  In connection with the special meeting, Western will mail an 
information circular to its shareholders providing further details of the 
transaction. Walter Energy beneficially owns and controls a total of 54,547,858 
common shares of Western Coal, representing approximately 19.6 percent of the 
outstanding common shares of Western Coal.  Walter Energy intends to vote these 
shares in favor of the transaction at the special meeting. 
 
Western Coal's shareholders are cautioned that an arrangement where they would 
receive Walter Energy shares directly will result in a taxable event for 
Canadian shareholders and shareholders in the United States. 
 
Conference Call Webcast 
 
Walter Energy interim chief executive officer Joe Leonard and Western Coal 
president and chief executive officer Keith Calder will brief investors and 
other interested parties on Friday, Dec. 3, 2010; 11:30 a.m. Eastern Standard 
Time during a conference call, which will be broadcast live over the Internet. 
Participants dialing in by telephone should use one of the telephone numbers and 
the passcode below. Participants are urged to call in several minutes ahead to 
register their participation. Those interested in listening to the Web cast may 
do so by visiting either Walter Energy's Web site at www.walterenergy.com or 
Western Coal's Web site at www.westerncoal.com. An archive will be available on 
both sites for up to 30 days. 
 
What:        Walter Energy and Western Coal Investor Conference Call 
 
When:       Dec. 3, 2010; 11:30 a.m. Eastern Standard Time 
 
Where:      Toll-Free Conference Call Number: 888-989-4414 
                 Alternate Conference Call Number: 1-630-395-0188 
                 Reservation Passcode: WLT 
OR 
 
www.walterenergy.com or www.westerncoal.com 
 
About Walter Energy 
Walter Energy is a leading U.S. producer and exporter of premium hard coking 
coalfor the global steel industry and also produces steam coal and industrial 
coal, metallurgical coke and coal bed methane gas. The Company has annual 
revenues of approximately $1.2 billion and employs approximately 2,100 people. 
For more information about Walter Energy, please visit the Company Web site at 
www.walterenergy.com. 
About Western Coal 
Western Coal is a producer of high quality metallurgical coal from mines in 
northeast British Columbia (Canada), high quality metallurgical coal and 
compliant thermal coal from mines located in West Virginia (USA), and high 
quality anthracite coal in South Wales (UK). The Company is headquartered in 
Vancouver, BC, Canada. It is listed on the TSX and AIM as "WTN". 
www.westerncoal.com. 
 
Safe Harbor Statement 
Except for historical information contained herein, the statements in this 
release are forward-looking and made pursuant to the safe harbor provisions of 
the Private Securities Litigation Reform Act of 1995 and may involve a number of 
risks and uncertainties. Forward-looking statements are based on information 
available to management at the time, and they involve judgments and estimates. 
There can be no assurance that the transaction with Western Coal will close. The 
transaction is subject to a number of closing conditions which may be outside of 
Walter Energy's control. Forward-looking statements include expressions such as 
"believe," "anticipate," "expect," "estimate," "intend," "may," "plan," 
"predict," "will," and similar terms and expressions. These forward-looking 
statements are made based on expectations and beliefs concerning future events 
affecting us and are subject to various risks, uncertainties and factors 
relating to our operations and business environment, all of which are difficult 
to predict and many of which are beyond our control, that could cause our actual 
results to differ materially from those matters expressed in or implied by these 
forward-looking statements. The following factors are among those that may cause 
actual results to differ materially from our forward-looking statements: the 
market demand for coal, coke and natural gas as well as changes in pricing and 
costs; the availability of raw material, labor, equipment and transportation; 
changes in weather and geologic conditions; changes in extraction costs, pricing 
and assumptions and projections concerning reserves in our mining operations; 
changes in customer orders; pricing actions by our competitors, customers, 
suppliers and contractors; changes in governmental policies and laws, including 
with respect to safety enhancements and environmental initiatives; availability 
and costs of credit, surety bonds and letters of credit; and changes in general 
economic conditions. Forward- looking statements made by us in this release, or 
elsewhere, speak only as of the date on which the statements were made. See also 
the "Risk Factors" in our 2009 Annual Report on Form 10-K and subsequent filings 
with the SEC which are currently available on our website at 
www.walterenergy.com. New risks and uncertainties arise from time to time, and 
it is impossible for us to predict these events or how they may affect us or our 
anticipated results. We have no duty to, and do not intend to, update or revise 
the forward-looking statements in this release, except as may be required by 
law. In light of these risks and uncertainties, readers should keep in mind that 
any forward-looking statement made in this press release may not occur. All data 
presented herein is as of the date of this release unless otherwise noted. 
Western Coal's Forward-Looking Information Disclaimer 
This release may contain forward-looking statements that may involve risks and 
uncertainties. Such statements relate to Western Coal's expectations, 
intentions, plans and beliefs including, in particular, statements relating to a 
potential strategic business combination between Western Coal and Walter and the 
terms of any such transaction. These statements are not guarantees of future 
performance and involve risks, uncertainties and assumptions that are difficult 
to predict. Actual outcomes and results may differ materially from what is 
expressed or forecasted in these forward-looking statements as a result of 
various important factors, including, but not limited to: Western Coal's ability 
to complete the business combination with Walter on the price, terms and 
conditions described or at all; the benefits of such transaction and its impact 
on Western Coal's business; changes in commodity prices; strengths of various 
economies; the effects of competition and pricing pressures; the oversupply of, 
or lack of demand for, Western Coal's products; currency and interest rate 
fluctuations; various events which could disrupt Western Coal's construction 
schedule or operations; Western Coal's ability to obtain additional funding on 
favourable terms, if at all; and Western Coal's ability to anticipate and manage 
the foregoing factors and risks. Additionally, statements related to the 
quantity or magnitude of coal deposits are deemed to be forward looking 
statements. The reliability of such information is affected by, among other 
things, uncertainties involving geology of coal deposits; uncertainties of 
estimates of their size or composition; uncertainties of projections related to 
costs of production; the possibilities in delays in mining activities; changes 
in plans with respect to exploration, development projects or capital 
expenditures; and various other risks including those related to health, safety 
and environmental matters. Readers are referred to the documents filed by 
Western Coal on SEDAR. 
 
 
+----------------------------------+----------------------------------------+ 
| Walter Energy Contacts:          | Western Coal Contacts:                 | 
| Investors:                       | Investors:                             | 
| Mark H. Tubb                     | David Jan                              | 
| Vice President - Investor        | Head of Investor Relations             | 
| Relations                        | 604.694.2891                           | 
| 813.871.4027                     | [e-mail]              | 
| [e-mail]           | Cenkos Securities                      | 
|                                  | Nominated Advisor and Broker           | 
| Media:                           | Nick Wells/ Ivonne Cantu               | 
| Michael A. Monahan               | [phone]                       | 
| Director - Corporate             |                                        | 
| Communications                   | Media:                                 | 
| 205.745.2628                     | Bobby Morse / Katharine Sutton         | 
| [e-mail]        | Buchanan Communications                | 
|             OR                   | [phone]                    | 
| Jim Barron/Michael Henson        | [e-mail]                 | 
| Sard Verbinnen & Co.             |                                        | 
| 212.687.8080                     |                                        | 
+----------------------------------+----------------------------------------+ 
 
                                      *** 
 
[i] Expressed in short tons and based on each company's publicly disclosed 
reserves, which are compiled under differing technical standards. 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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