Teck aims to diversify with $14.1 billion Fording deal
TORONTO (Reuters) - Teck Cominco (TCKb.TO) will buy Fording Canadian Coal Trust FDG_u.TO for $14.1 billion in cash and stock in a deal that will make it the world's No. 2 exporter of coal used in steel making, Teck said on Tuesday.
The deal will allow Teck to take advantage of metallurgical coal prices that have nearly tripled in the past year as demand has surged, particularly in Asian countries.
It also helps Teck fulfill its goal of increasing its exposure to non-exchange-traded commodities -- where it has more control of pricing -- and away from metals such as zinc, the price of which has dropped sharply since 2006.
Under the deal, Fording unitholders will receive $82.00 in cash and 0.245 of a Teck share per unit, an 11 percent premium on the New York-listed units as of Monday's close.
The friendly deal will see Vancouver, British Columbia-based Teck gain full ownership of the Elk Valley Coal Partnership, which is 60 percent owned by Fording. Teck already owns about 20 percent of Fording, and also the remaining 40 percent of Elk Valley.
"There's no integration risk here; we already manage the asset. We didn't have to do due diligence, we know them," Teck Cominco Chief Executive Don Lindsay said in an interview.
Fording units jumped $6.51, or 7.9 percent, to close $89.00 on the New York Stock Exchange, ending shy of the offer price of $92.24 a unit, based on Teck's closing price of $41.79.
In Toronto, Fording units jumped C$6.55, or 7.8 percent, to C$90.35, while Teck rose C$2.44, or 6 percent, at C$42.85.
Teck estimated the deal should provide a 50 percent boost to its 2009 core earnings, and immediately add to both earnings and cash flow.
Teck said last week that Elk Valley's negotiated coal price in 2008 rose to $275 a tonne from $93 in 2007.
The stronger coal prices realized by the industry prompted a surge in coal stocks, including Fording, which peaked in June. That rally has since evaporated, which provided an opening for Teck, said Lindsay.
"There's a lot of fear in the market and people are more willing to sell at a more reasonable valuation today than they were a month or five or six week ago, when the coal market was in a frenzy," he said.
FORDING SEARCH FOR BUYERS
The deal had been anticipated by some analysts since Fording said last December it would explore its strategic alternatives, including a possible sale. As a Fording shareholder and partner, Teck was seen as a logical buyer.
Michael Grandin, the chairman of the independent committee of Fording trustees, said the deal will allow investors to lock in the company's price before income trusts such as Fording are forced to convert to a regular corporate structure in 2011, which would likely hurt its valuation. Continued...
