Whitehaven Coal Ltd. on Monday, Dec. 12, agreed to buy Aston Resources Ltd. to create Australia's largest independent coal mining company, with a market capitalization of about A$4.86 billion ($4.81 billion).
Sydney-based Whitehaven will offer 1.89 shares for each Aston share, following a cash payment of about A$247 million to Whitehaven shareholders. The deal values Brisbane-headquartered Aston at about A$2.22 billion, or A$10.85 per share, based on Whitehaven's Monday closing price. That is equal to a 9.6% premium to Aston's A$9.90 Monday closing price.
"The merged entity will become one of Australia's leading independent coal producers, with a high quality portfolio of producing mines, major development projects and attractive exploration assets," IG Markets Ltd. analyst Stan Shamu, based in Melbourne, wrote in a note published Monday.
Aston is 32%-owned by its chairman, Nathan Tinkler, a former mine electrician who is Australia's youngest billionaire. Tinkler also secured a deal to swap an initial 85.88 million Whitehaven shares, worth about A$493 million, for his privately held coal prospector Boardwalk Resources Pty. Ltd., an owner of exploration and development assets in Queensland and New South Wales. The parties agreed on a further conditional payment of 34 million shares depending on Boardwalk's winning approval for certain mining projects.
Australia's coal sector has been one of the most active M&A arenas of 2011, registering more than 70 deals, totaling more than A$11 billion, including Whitehaven's bid for Aston. Monday's merger announcement between two similarly valued Australian companies is atypical of those deals, the majority of which have been driven by large coal mining or diversified mining groups snapping up far smaller Australian players to boost output and secure metallurgical coal reserves to meet demand from the steelmakers of industrializing countries including China and India.
"The merged entity will represent an extremely attractive investment of scale in the rapidly consolidating Australian listed coal sector and is positioned to deliver substantial synergy benefits to shareholders," Tinkler said in a statement.
Tinkler will vote his 32% stake in favor of the merger. Whitehaven shareholders representing 43% of the company's stock have indicated they will back the merger.
Combining Whitehaven and Aston will create a coal company with forecast salable production of 6 million tons a year in 2012, all from Whitehaven's mines, increasing to 25 million tons by 2016 as Aston begins output and Whitehaven increases production.
The merged company will have about 2.4 billion tons of resources, of which 1.78 billion belong to Whitehaven, and 842 million tons of marketable reserves, just over half of which come from the Whitehaven side.
Aston's principal asset is its 75% stake in the Maules Creek coking and thermal coal project in the Gunnedah Basin of New South Wales. Maules Creek is scheduled to begin production in the second quarter of 2013 and hopes to produce about 12 million tons of semisoft coking coal and high-grade thermal coal, both for export, by 2014. The project is located about 10 miles from Whitehaven's Narrabri North Mine. Whitehaven, which operates four mines, all located in the same basin as Aston's Maules Creek project, plans to increase production to about 15 million tons per year by 2016.
Tinkler will step down as chairman of Aston following the deal, and Aston's deputy chairman, Mark Vaile, will become chairman of the enlarged Whitehaven. Whitehaven managing director Tony Haggarty will keep his post at the combined group.
Aston paid A$480 million in 2010 to buy Maules Creek from Rio Tinto Group. In October, Aston agreed to sell a 10% holding in the operation to Japan's Electric Power Development Co. Ltd. for A$370 million. Based on that valuation, its stake in Maules Creek would be worth about A$2.78 billion. Japan's Itochu Corp. owns the other 15% of the Maules Creek project.
Whitehaven earlier this year dumped plans to sell itself after an auction organized by Goldman Sachs Group Inc. and Grant Samuel Corporate Finance Pty. Ltd. failed to drum up a buyer that met the reserve price.
Both the Whitehaven and Boardwalk deals are expected to close in April 2012.
Whitehaven is taking financial advice from Grant Samuel Corporate Finance and Goldman Sachs Australia. Its legal advisers are Corrs Chambers Westgarth and McCullough Robertson.
Aston has turned to UBS and Credit Suisse Group for financial advice. It is taking counsel from Freehills.
Boardwalk tapped Queen Street Capital Pty. Ltd. and Morgan Stanley for financial advice. Its legal adviser is Gilbert + Tobin.
Whitehaven shares closed Monday on the Australian exchange at A$5.74, down A$0.08, or 1.4%, on their previous close. Aston shares closed at A$9.90, up A$0.14, or 1.4%.