Sector Snap: Coal Companies Jump On Takeover Talk

The Associated Press

NEW YORK (AP) ⿿ Shares of coal companies jumped sharply Wednesday on speculation that a wave of mergers and acquisitions might consolidate the industry and provide a hefty payday for shareholders.

The rise in share prices was driven by smaller coal companies, which shows that investors think those firms are ripe to be bought out, said Michael Tian, a coal company analyst with Morningstar Inc.

Shares of takeover targets typically rise on news of merger deals, because acquirers usually pay a premium to convince shareholders to sell. On Wednesday, shares of companies that would potentially be the buyers also rose, though not as much, on the expectation that deals could give them more market share and boost their competitive positions.

Tian said the takeover speculation was stoked by rumors that Walter Energy Inc. might be the subject of a buyout offer. Shares of Walter Energy jumped as much as 30 percent Wednesday.

Similarly, shares of Patriot Coal Corp. surged more than 14 percent on takeover speculation.

"The U.S. coal producers have been getting larger in general," Tian said in an interview. "When (investors) see something about a merger now, they get excited."

This summer has seen two big coal company mergers. On June 1, coal producer Alpha Natural Resources closed its $7.1 billion purchase of rival Massey Energy Co. Arch Coal completed its $3.4 billion acquisition of smaller rival International Coal Group on June 15.

Tian said the industry is consolidating for the same reason many other industries do: There are economies of scale the companies can achieve by getting bigger. But he cautioned that the high-profile deals already signed this summer don't necessarily mean that a merger wave will sweep the industry.

Citi analyst Brian Yu also cast doubt on merger speculation. He said the current rumors were stoked by an article in The Times of London that said London-based coal company Anglo American is considering a bid for Walter Energy at $120 per share, a premium of about 60 percent over Tuesday's closing price. But Yu wasn't convinced the deal will happen.

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