UPDATE 1-Walter Energy accuses activist fund of 'serious omissions'

Mon Mar 25, 2013 3:20pm EDT

* U.S. coal miner squaring off with British activist fund

* Walter highlights insider trading case against nominee

* Fund stands by its nominees, criticizes management

By Allison Martell and Julie Gordon

March 25 (Reuters) - Walter Energy Inc on Monday struck back against the British hedge fund that wants to replace half its board and said its campaign was a "hit and run" designed to turn a quick profit by driving up Walter's share price - something the fund denied.

The U.S. coal miner highlighted what it said were "serious omissions" in Audley Capital Advisors LLP's proxy statement, including an insider trading case against one of the fund's nominees. It questioned the accuracy of another candidate's biography.

"Audley is focused on short term gains at the expense of other shareholders," said Walter in a letter to shareholders.

Reuters was unable to reach either of the two nominees for comment.

Julian Treger, managing partner of Audley Capital, told Reuters he stands by his nominees, and is not a short-term investor: "We're not permanent shareholders...but we are certainly, very much, medium-term holders," he said.

Treger said Audley, which now controls less than one percent of Walter, would likely add to its investment if it wins the proxy battle. Walter's annual meeting is set for April 25.

Shares of Walter, which produces metallurgical and some thermal coal in Canada, the United States and the United Kingdom, have fallen more than 50 percent in the last year, hurt in part by low prices for metallurgical coal, which is used to make steel.

The shares were down almost 5 percent on Monday at $28.01.

Audley criticizes Walter for missing its own forecasts, churning through chief executives and taking on too much debt at punishing interest rates. In November, Walter priced $500 million in senior notes at 9.875 percent.

Walter said it was focused on reducing debt levels, cutting costs and "identifying alternatives for underperforming assets." On Friday the company said it would idle a high-cost mine in western Canada, and its shares rose.

INSIDER TRADING CASE

Walter also criticized Audley for not disclosing a tipping and insider trading case against one of its nominees, former Grande Cache Coal Chief Executive Robert Stan, in its proxy statement.

In a notice of hearing dated Dec. 5, 2011, the Alberta Securities Commission accused Stan of sharing material information with his wife, who then sold securities of Grande Cache. It said he had also exercised options to buy securities of Grande Cache during the same period. On the regulator's website, the case is listed as "decision on merits pending".

Treger said he does not think the issue is material and Stan's experience building Grande Cache Coal, which agreed to a C$1 billion ($970 million) takeover by two Asian traders in October 2011, would be valuable to Walter.

"There's no substance to these allegations. He is convinced that he will be entirely exonerated," said Treger. "We should presume innocence."

Stan could not immediately be reached for comment.

Audley was a major shareholder in Western Coal when Walter acquired the Canadian miner. After the combined company's CEO resigned abruptly, Audley urged it to look for an acquirer.

According to Walter, Treger sent a letter to the board on July 17, 2011, went public on July 18, and sold about one third of his stake between July 18 and July 21.

"It was part of a broader pattern of selling our shares, because we were concerned about the direction the company was taking, and in retrospect, rightly so," said Treger.

AUDLEY FILES PROXY

Walter Energy also questioned an element of Audley's biography of nominee Edward Scholtz, noting that Audley's proxy statement lists him as a director of Talon Metals Corp.

Scholtz, former chief executive of Talon, is not listed as a director on the company's website, and a Talon management information circular gives Feb. 8, 2012, as the date of his departure from the company.

Walter also disputed Audley's assertion that Scholtz was chief operating officer of CIC Energy Corp from 2008 to 2012, saying that role was held by someone else in 2007 through 2010. CIC's annual disclosures show Tore Horvei was chief operating officer from January 2007 to at least the end of February 2009.

Treger said he had not yet spoken to Scholtz, and could not comment on the specific allegations. Scholtz could also not immediately be reached for comment.

Audley said on Monday it had filed its definitive proxy materials, and urged investors to vote for its nominees.

Walter Energy's major shareholders include J.P. Morgan Asset Management, with a 6.9 percent stake as of Dec. 31, according to Thomson Reuters data, and Harris Associates LP, with a 5.0 percent stake as of Dec. 31. The company's top 10 investors own just over 40 percent of its outstanding shares.

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