Iron ore and coal miner Cleveland-Cliffs said on Wednesday that it would acquire Alpha Natural Resources for $10 billion in cash and stock, expanding its coal assets and positioning itself to capitalize on the boom in the global steel industry.
Alpha mines vast amounts of metallurgical coal, which is used primarily to make coke, a key component in steel making. It also produces steam coal, used mainly by utilities as fuel for electricity generation.
Stockholders of Alpha, an Appalachian coal producer, will receive 0.95 Cleveland-Cliffs share and $22.23 cash for each of their shares. Based on closing stock prices on Tuesday, the deal values Alpha at $128.12 per share, a premium of 35 percent, the companies said in a statement.
Cleveland-Cliffs expects to pay about $1.7 billion in cash and about 71 million new shares of common stock. The combined company, which will be named Cliffs Natural Resources, will include nine iron ore facilities and more than 60 coal mines located across North America, South America and Australia.
On closing, Alpha shareholders will own about 40 percent of the combined company, while Cleveland-Cliffs shareholders will own about 60 percent.
The boards of both companies have approved the deal, which is expected to close by the end of 2008.
JPMorgan Chase Bank is providing an underwriting commitment for up to $1.9 billion to finance the deal.
Based on analysts' current expectations for Cleveland-Cliffs, the company expects the deal to boost 2009 earnings.
Cliffs Natural Resources expects to realize annual savings of at least $200 million beginning in 2010, mostly through enhanced coal processing and blending efficiencies.
The combined company will have a reserve base of about one billion tons of iron ore and about one billion tons of metallurgical and thermal coal, with annual sales volume of over 30 million tons of iron ore and nearly 18 million tons of metallurgical coal. It will ship about 17 million tons of thermal coal annually.
Cliffs Natural Resources expects to generate strong operating cash flow, which will be used to pay down debt, the companies said.
On closing, Cleveland-Cliffs' board will be expanded by two seats, to be filled by two current Alpha directors -- Glenn Eisenberg and Alpha Chief Executive Michael Quillen.
Cleveland-Cliffs Chief Executive Joseph Carrabba will serve as chairman and chief executive of the combined company, which will be based in Cleveland.