(ACI) Arch Coal Finalizes International Coal Group Deal

Arch Coal Inc. (ACI) announced the successful closing of the merger deal with International Coal Group Inc. (ICO). Following the completion of the acquisition International Coal will operate as a wholly owned subsidiary of Arch.

As part of the merger, Arch completed a previously disclosed tender offer acquiring nearly 92% of International Coal’s outstanding shares of common stock for an aggregate value $3.4 billion, excluding costs associated with the redemption of International Coal’s outstanding debt and fees related to the transaction.

Adding about 13 million tons of low-cost Appalachian thermal production to Arch’s vast domestic thermal coal portfolio, the acquisition is set to solidify the company’s No. 2 position among U.S.-based coal miners and create the U.S. coal industry’s most diversified producer.

The successful closing of the acquisition will make Arch the second largest U.S. metallurgical coal producer and one among the top 10 global suppliers to the steelmakers. Arch Coal expects this transaction to add tremendous value for Arch’s stakeholders in the coming years.

This acquisition helps Arch reach out to every major U.S. coal supply basin, enhances its low-cost structure and leadership position in core operating regions and creates a world-class thermal and metallurgical coal franchise.

Arch expects pro forma metallurgical sales to reach 11 million tons in 2011. Going forward, the company expects to capitalize well on expansion opportunities and targets to raise its metallurgical coal output to nearly 15 million tons by 2015 to serve under-supplied, growing global metallurgical markets.

This acquisition will also boost Arch’s coal reserves by 25% to 5.5 billion tons (pro forma as of December 31, 2010), making it the second largest reserve holder in the United States.

Of these reserves, about 431 million tons are characterized as metallurgical quality, comprised of low volatile coal, high volatile coal as well as pulverized injection coal. This will help Arch to own one of the most extensive and highest quality metallurgical coal reserve bases in the U.S. coal industry.

Once the International Coal integration is complete Arch will operate 24 mining complexes across five U.S. coal supply basins, with planned pro forma coal sales of 171 million to 176 million tons in 2011.  The company will employ roughly 7,400 people and expects pro forma 2011 revenues of more than $5 billion.

Going forward, Arch expects to yield annual synergies of $70 – $80 million, beginning in 2012, through the transaction.

Arch Coal said it has already moved ahead with the integration plans for these assets and expects to fully integrate International Coal quickly over the next three to six months. Arch Coal hopes to fully realize the target synergies from the transaction in the first full year of operation.

Arch Coal funded the International Coal purchase with a combination of new debt and equity offerings completed in June 2011. The company successfully executed capital markets transactions so that it could prudently finance the acquisition, retain its existing credit ratings and preserve a strong balance sheet.

Based in St. Louis, Missouri, Arch Coal engages in the production and sale of steam and metallurgical coal. The company also ships coal to domestic and international steel manufacturers as well as international power producers.

Arch Coal currently retains a Zacks #3 Rank (short-term Hold rating). The company competes with Peabody Energy Corp. (BTU) among others.

ARCH COAL INC (ACI): Free Stock Analysis Report

PEABODY ENERGY (BTU): Free Stock Analysis Report

INTL COAL GROUP (ICO): Free Stock Analysis Report

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