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Gloucester Coal to announce potential takeover

by Paul Whitfield | Published December 20, 2011 at 9:04 AM

Approaching the end of a bumper year of takeovers for Australian coal assets, dealmakers may yet squeeze in another billion-plus transaction before 2011 is done.

Gloucester Coal Ltd. on Tuesday, Dec. 20, asked that trading in its shares be suspended for two days "in connection with a potential merger proposal." The unnamed bidder is almost certainly China's Yanzhou Coal Mining Co. Ltd., which simultaneously requested that its Hong Kong-listed shares be suspended pending a "price-sensitive announcement."

Gloucester, which is 63% owned by Singapore-listed commodities trader Noble Group Ltd., has a market capitalization of about A$1.43 billion ($1.38 billion), about one-tenth the size of Yanzhou, which has a market capitalization of HK$108 billion ($13.46 billion).

"The trading halt is necessary as Gloucester expects to make an announcement in connection with a possible change of control transaction, but is not yet in a position to make the announcement," Gloucester's company secretary Hemang Shah wrote in a letter to the Australian Securities Exchange. Yanzhou is likely to bid about A$1.9 billion for Gloucester through its Australian unit Yancoal Australia Pty. Ltd., Reuters reported, citing three people familiar with the situation. That would value the target at more than A$9 per share. Shares in Gloucester, which have lost more than a third of their value over the past 12 months, closed on Monday at A$7.03.

Gloucester would expand Yancoal's existing Australian operations, acquired in 2009 when the Chinese company paid A$3.5 billion for Felix Resources Ltd. By merging its Australian operations, Yancoal could also secure a back-door route to an Australian listing without having to launch an initial public offering into volatile markets. Yanzhou Coal agreed to list at least 30% of its Australian unit by the end of 2012 in order to win Australian regulatory backing for its takeover of Felix.

Gloucester majority owner Noble has shown in the past that it is open to a sale. The Hong Kong-headquartered trading group last year agreed to an all-share deal with Macarthur Coal Ltd. that would have left it with a minority 22% stake. That deal later collapsed after Macarthur first delayed then abandoned it after it received an offer from Xstrata plc.

Macarthur eventually succumbed to a $4.9 billion offer from Peabody Energy Corp., the largest of more than 70 Australian coal sector deals over the past 12 months. A total of more than A$9 billion of Australian coal assets have changed hands this year as both mining companies and end users seek to secure resources in the expectation of continued strong demand, particularly from China and India.

Gloucester coal made A$306 million in Ebitda for its financial year 2011, up from A$229.3 million a year earlier. It produced a total 1,814 kilotons of coking and thermal coal from its five operations, about 60% of which comes from its Gloucester Basin operations located in the Australian state of New South Wales.

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