Arch Coal buys ICG for billions

Arch Coal Inc. and International Coal Group Inc. signed a definitive agreement under which Arch will acquire all of the outstanding shares of ICG for $14.60 a share in an all-cash transaction valued at $3.4 billion.

Arch said the combined company will be the second largest U.S. metallurgical coal supplier and a top-five overall global coal producer and marketer. Arch also said it will have a balanced metallurgical and thermal coal portfolio with operations in every major U.S. supply basin and the No. 1 or No. 2 position in each of its three core operating regions. The deal is expected to close in the second quarter of 2011.

Based on pro forma 2010 financial results, the combined company would have total shipments of 179 million tons of coal, $4.3 billion in revenues and $925 million of adjusted EBITDA, with a balanced split of earnings generated from eastern and western operations. Arch said it expects 2011 pro forma metallurgical coal sales to reach 11 million tons and over the next three years, coal volumes are expected to expand to more than 14 million per year.

The boards of directors of both companies approved terms of the transaction agreement. Morgan Stanley is the financial advisor to Arch while UBS is acting as the financial advisor to ICG.

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