Gloucester Coal Agrees to Buy Whitehaven for A$545 Million

By Jesse Riseborough

Feb. 20 (Bloomberg) -- Gloucester Coal Ltd., an Australian producer backed by Noble Group Ltd., agreed to acquire Whitehaven Coal Ltd. for A$545 million ($351 million) in shares, adding five mines and a stake in an export terminal project.

Gloucester offered 1 share for every 2.45 Whitehaven share, the Sydney-based companies said today in a joint statement. That values Whitehaven’s shares at 12 percent less than yesterday’s close. The deal is supported by both boards, the statement said.

Gloucester expects record first-half profit and has forecast thermal coal demand to remain strong. China, the world’s biggest user of the fuel, may boost imports from Australia this year, according to Merrill Lynch & Co.

“They are going to be making fairly decent profits as a combined entity, especially with the growth profile they’ve got,” Andrew Harrington, a mining analyst at Patersons Securities Ltd., said today by phone from Sydney. “It looks like it’s a pretty good deal for Gloucester given the merger ratio is at a discount rather than a premium.”

Gloucester, which has a market value of A$278 million, rose 4 percent to A$3.41 at 1:27 p.m. Sydney time on the Australian stock exchange. Whitehaven, which has a market value of A$598 million, fell 3 percent to A$1.47. The takeover ratio values Whitehaven shares at A$1.34. They closed yesterday at A$1.515.

Discount Argument

“You could argue there is a discount, but if you look back anywhere from three to 12 months then you could equally argue there is a premium,” Whitehaven Managing Director Tony Haggarty said on a conference call with analysts and reporters. “Both boards are very satisfied with the way the price has come out.”

Whitehaven directors, representing 74 percent of the stock, plan to accept the bid, the statement said. Noble, a Hong Kong- based commodity supplier, owns 21.7 percent of Gloucester and closely held U.S.-based mining investment company, AMCI Inc. holds 9.9 percent. Both market coal for Gloucester. AMCI controls 33 percent of Whitehaven.

Contract prices for energy coal more than doubled to a record last year as demand from Asian utilities jumped and bottlenecks at Australian ports curbed supply growth. The combined company will have sales of about 75 percent thermal coal and 25 percent coking coal, according to a slides presentation.

UBS AG is advising Gloucester. Grant Samuel & Associates Pty and Wilson HTM Investment Group are advising Whitehaven. Whitehaven’s Haggarty will initially head the renamed, combined company before being succeeded by his Gloucester counterpart, Rob Lord, the statement said.

Seven Mines

Whitehaven operates the Tarrawonga, Werris Creek, Rocglen and Sunnyside thermal coal mines in New South Wales state. The combined company, based on 2008 figures, would produce about 4.5 million metric tons of coal annually from seven mines and have reserves of 190 million tons and resources of 922 million tons, the companies said. It will also have cash of A$102 million, the statement said.

Whitehaven also owns an 11 percent stake in the Newcastle Coal Infrastructure Group, which is building a new export terminal at the harbor.

Thermal coal prices may drop about 36 percent to $80 a ton for the year starting April 1 amid a deepening global recession, Merrill Lynch analysts led by Sydney-based Tom Price said in a Feb 9 report. That’s still the second-highest on record. Prices at Australia’s Newcastle port, the world’s biggest export harbor for the fuel, rose 2.6 percent, to $80.24 a ton in the week to Feb. 13, according to the globalCOAL NEWC Index.

“We will be contacting all key shareholders today, we would hope that Noble would see this as a good deal for all shareholders, that’s how we see it,” Gloucester’s Lord said. He declined to comment if Noble were aware of the bid.

Gloucester shareholders, including Noble and AMCI, voted against a A$391 million takeover by Xstrata Plc in 2007.

Hans Mende, a director of Whitehaven and president of AMCI, a closely held mining company, has “indicated his support” for the transaction, Whitehaven’s Haggarty said. Mende owns a 19.9 percent stake in Whitehaven and AMCI hold a 13.3 percent stake.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net